Personal Finance

HELOC rate option help!

  • Last Updated:
  • Sep 19th, 2021 9:58 am
[OP]
Deal Addict
Apr 21, 2014
2282 posts
1029 upvotes
Alberta

HELOC rate option help!

Hi all, first of all I live in the states. I applied for a HELOC back in June that just got approved now (COVID delay, lot of applications etc). The HELOC is available is 60K, and am being offered some options and I need to decide in the next few days before we sign the documents.

The HELOC rate is 0.99% promotional for the first year and then prime plus a margin (currently 3.25% + margin) thereafter. The are also providing me with an option to have a sub account with an initial draw of at least 25K and that will be at 2.99% FIXED for 10 years. However if I put any payments against that 2.99% sub account it will just increase the available credit limit of the primary account.

PURPOSE: The initial purpose of the HELOC is to do my backyard.

I also want to use the funds to invest in dividend paying

Should I split or not bother and just have the 1 account with the promo rate and then up to possibly 4% thereafter.

Thanks!
Last edited by abc123yyz on Sep 15th, 2021 7:52 am, edited 1 time in total.
8 replies
Deal Fanatic
User avatar
Jan 6, 2002
6022 posts
6254 upvotes
Toronto
abc123yyz wrote: Any thoughts ?
tl;dr
As someone long prepared for the occasion, in full command of every plan you wrecked---
Do not choose a coward's explanation, that hides behind the cause and the effect...
Member
Dec 13, 2010
417 posts
495 upvotes
Vancouver
abc123yyz wrote: Hi all, first of all I live in the states. I applied for a HELOC back in June that just got approved now (COVID delay, lot of applications etc). The HELOC is available is 60K, and am being offered some options and I need to decide in the next few days before we sign the documents.

The HELOC rate is 0.99% promotional for the first year and then prime plus a margin (currently 3.25% + margin) thereafter. The are also providing me with an option to have a sub account with an initial draw of at least 25K and that will be at 2.99% FIXED for 10 years. However if I put any payments against that 2.99% sub account it will just increase the available credit limit of the primary account.

eg. Total HELOC 60K

Primary account: 30K available (0.99% first year, and 3.25% plus a margin thereafter)
Sub account: 30k balance 0 available (2.99% fixed for 10 years but need to initially draw)

If i get a bonus and pay off that entire 30k in the subaccount, that will now make it

Primary account: 60k available
Sub account 0K available.

However, since they are different loan numbers, I can choose what LOC balance to pay.

PURPOSE: The initial purpose of the HELOC is to do my backyard. However since it is September, I won't complete all the backyard this year (I will do all the paver work and retaining wall this year), but all the grass and planting early next year.
I also want to use the funds to invest in dividend paying stocks, and will be using Velocity banking strategy for this (where my entire paycheck will be paid to the HELOC and expenses out of it). Minimal debt of 4K on PLOC not including mortgage.

PLAN: My plan was to take out an initial draw of 30K to lock in that 2.99% on that 30K for 10 years and use that money to invest in Dividend paying stocks. Then use the 30K that's in the Promotional category for my backyard and hopefully pay it all off before the promo period ends.

Or should I not bother and just have the 1 account with the promo rate and then up to possibly 4% thereafter. Its tempting to be able to use $25+k for 2.99% fixed for the next 10 years with only having to pay interest payments on it each month.

Thanks!
Who is your HELOC with? It does not sound very competitive, from what you've written. Most HELOC are at prime +0.5% (so 2.95% at the moment), and when you lock in a balance you can get the current mortgage rates (variable or fixed, you should be able to choose). The 0.99% promotional rate looks nice at first, but it's only for 1 year and then it bumps up to 3.25% + margin - which is very high for a HELOC.

A few other questions:

1. Do you have an existing mortgage with this lender?
2. Is the HELOC automatically readvanceable?
3. What is the "margin" they will add to your 3.25% after the promo?

Unless you have issues qualifying through other lenders, I would suggest looking elsewhere for the HELOC. Even going with Simplii, which has just a $150 setup/legal/appraisal fee, offers prime +0.5%. And if you are mortgage free, or are willing to move your mortgage, go to Tangerine who has HELOC at prime minus 0.1%.
[OP]
Deal Addict
Apr 21, 2014
2282 posts
1029 upvotes
Alberta
mastaj wrote: Who is your HELOC with? It does not sound very competitive, from what you've written. Most HELOC are at prime +0.5% (so 2.95% at the moment), and when you lock in a balance you can get the current mortgage rates (variable or fixed, you should be able to choose). The 0.99% promotional rate looks nice at first, but it's only for 1 year and then it bumps up to 3.25% + margin - which is very high for a HELOC.

A few other questions:

1. Do you have an existing mortgage with this lender?
2. Is the HELOC automatically readvanceable?
3. What is the "margin" they will add to your 3.25% after the promo?

Unless you have issues qualifying through other lenders, I would suggest looking elsewhere for the HELOC. Even going with Simplii, which has just a $150 setup/legal/appraisal fee, offers prime +0.5%. And if you are mortgage free, or are willing to move your mortgage, go to Tangerine who has HELOC at prime minus 0.1%.

I’m in the states. Prime here is 3.25%.
Deal Fanatic
User avatar
Jan 6, 2002
6022 posts
6254 upvotes
Toronto
The rates aren't very good either way, but, it makes sense to used the fixed (2.99%) portion for investment purposes, as the interest payments (probably -- most here won't know US tax law since it's a Canadian site) will have offsetting deductions against your dividend income. Dedicated HELOC segment will make it easier to track interest/expeneses.

You are only talking about 30K though, so it's small amounts regardless of what you do.
As someone long prepared for the occasion, in full command of every plan you wrecked---
Do not choose a coward's explanation, that hides behind the cause and the effect...
[OP]
Deal Addict
Apr 21, 2014
2282 posts
1029 upvotes
Alberta
hoob wrote: The rates aren't very good either way, but, it makes sense to used the fixed (2.99%) portion for investment purposes, as the interest payments (probably -- most here won't know US tax law since it's a Canadian site) will have offsetting deductions against your dividend income. Dedicated HELOC segment will make it easier to track interest/expeneses.

You are only talking about 30K though, so it's small amounts regardless of what you do.
Thanks makes sense, but the rates are actually very good (for the states). Prime - 0.26% (prime is 3.25% here).
Deal Addict
Nov 10, 2012
2531 posts
1804 upvotes
Calgary
I would suggest posting your question on a personal finance forum on Reddit instead of here. This forum is generally Canadians who will be less knowledgeable about US HELOCs and US taxation questions etc.

Top