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Make free money with your Home Equity Loan

K

Kalbi

Banned
This only works if you are in the top rate.

Get a Home Equity Loan at 6%. Interest on such loans are tax deductable and your effective rate is 6% minus 35% = 3.9%

Co-mingle the funds into your checking and then buy Tax free muni bonds which you can get approximately 4.2% (higher for lower grade munis).

4.2% - 3.9% = 0.3% free money.

Check your AMT though; if AMT kicks in this won't work.
 
free money is overrated, that is why i work overtime but don't get paid extra since i am salary




😕
 
Originally posted by: Kalbi
This only works if you are in the top rate.

Get a Home Equity Loan at 6%. Interest on such loans are tax deductable and your effective rate is 6% minus 35% = 3.9%

Co-mingle the funds into your checking and then buy Tax free muni bonds which you can get approximately 4.2% (higher for lower grade munis).

4.2% - 3.9% = 0.3% free money.

Check your AMT though; if AMT kicks in this won't work.
Click to expand...
1) Technically it isn't tax deductable if spent like that. But the IRS will never know.
2) Very few people are in the 35% tax bracket.
3) No need for bonds, look around, a local bank here is offering 4.25% CDs. Oops, forgot about CD tax.
4) Home equity loans are often variable and won't stay at 6% for long.

 
I've been thinking that the best way to profit on the current real estate insanity would be to get a nice chunk of change out of a home equity loan while your value is high. Make some monye - or at least don't lose much as described by the OP. Then when the market bombs, sccop up some property cheap. Of course interest rates will likely suck then.
 
Originally posted by: dullard
Originally posted by: Kalbi
This only works if you are in the top rate.

Get a Home Equity Loan at 6%. Interest on such loans are tax deductable and your effective rate is 6% minus 35% = 3.9%

Co-mingle the funds into your checking and then buy Tax free muni bonds which you can get approximately 4.2% (higher for lower grade munis).

4.2% - 3.9% = 0.3% free money.

Check your AMT though; if AMT kicks in this won't work.
Click to expand...
1) Technically it isn't tax deductable if spent like that. But the IRS will never know.
2) Very few people are in the 35% tax bracket.
3) No need for bonds, look around, a local bank here is offering 4.25% CDs.
4) Home equity loans are often variable and won't stay at 6% for long.
Click to expand...

1) Correct. That's why I said comingle it.
2) I know.
3) Interest on CDs are taxable, so it's 4.25% minus 35%. Tax free munis are, well they're tax free.
4) Equity lines are variable, loans are fixed.
 
Originally posted by: Armitage
I've been thinking that the best way to profit on the current real estate insanity would be to get a nice chunk of change out of a home equity loan while your value is high. Make some monye - or at least don't lose much as described by the OP. Then when the market bombs, sccop up some property cheap. Of course interest rates will likely suck then.
Click to expand...

maybe you should change your name to Arbitrage
 
Originally posted by: dullard
Originally posted by: Kalbi
This only works if you are in the top rate.

Get a Home Equity Loan at 6%. Interest on such loans are tax deductable and your effective rate is 6% minus 35% = 3.9%

Co-mingle the funds into your checking and then buy Tax free muni bonds which you can get approximately 4.2% (higher for lower grade munis).

4.2% - 3.9% = 0.3% free money.

Check your AMT though; if AMT kicks in this won't work.
Click to expand...
1) Technically it isn't tax deductable if spent like that. But the IRS will never know.
2) Very few people are in the 35% tax bracket.
3) No need for bonds, look around, a local bank here is offering 4.25% CDs.
4) Home equity loans are often variable and won't stay at 6% for long.
Click to expand...


3) CDs wouldnt work because the interest you earn from it isn't tax deductible.

If you can find a mutual fund that can do 10-12% return a year, this would work even better.
 
Originally posted by: iversonyin
Originally posted by: dullard
Originally posted by: Kalbi
This only works if you are in the top rate.

Get a Home Equity Loan at 6%. Interest on such loans are tax deductable and your effective rate is 6% minus 35% = 3.9%

Co-mingle the funds into your checking and then buy Tax free muni bonds which you can get approximately 4.2% (higher for lower grade munis).

4.2% - 3.9% = 0.3% free money.

Check your AMT though; if AMT kicks in this won't work.
Click to expand...
1) Technically it isn't tax deductable if spent like that. But the IRS will never know.
2) Very few people are in the 35% tax bracket.
3) No need for bonds, look around, a local bank here is offering 4.25% CDs.
4) Home equity loans are often variable and won't stay at 6% for long.
Click to expand...


3) CDs wouldnt work because the interest you earn from it isn't tax deductible.

If you can find a mutual fund that can do 10-12% return a year, this would work even better.
Click to expand...

mutual funds aren't guarenteed. buying munis you lock in the spread.
 
Originally posted by: Kalbi
woops $1M
Click to expand...
So if you have $1M available (heck you'd need a $1+M house to do so) and you need to skirt around the laws, $3000 is chump change. Still not worth it in my opinion.

Instead if you have that type of income/house, loan $100k of your own money to someone who needs a mortgage at 6% and make $6k a year without worring about breaking laws. And if they don't pay, you get a house on the cheap to sell later at a profit.
 
Originally posted by: dullard
Originally posted by: Kalbi
woops $1M
Click to expand...
So if you have $1M available (heck you'd need a $1+M house to do so) and you need to skirt around the laws, $3000 is chump change. Still not worth it in my opinion.

Instead if you have that type of income/house, loan $100k of your own money to someone who needs a mortgage at 6% and make $6k a year without worring about breaking laws. And if they don't pay, you get a house on the cheap to sell later at a profit.
Click to expand...

man when the rate spread was bigger it was worth it. now the yield curve is so flat it won't work as well.
 
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