Payoff HELOC or keep my cash?

Question

Caleb Brown · Answer

This will be a personal question. If it is a burden over you pay it off. From the numbers standpoint investing the 50K into stocks, etc. would make the most sense. You can beat the 4.5%. What was the HELOC originally used for? If it was me I'd lean to pay it off to not worry about it. If you do that, use the $470 a month to invest into a fund/stocks. That will compound and grow

Joseph Neri · Answer

The math on this is interesting because you are paying 4.5 percent on the HELOC and earning 3.5 percent on the CD. That is a negative spread of 1 percent. So right now the HELOC is costing you money every month.

But here is the part most people miss. If you pay off the HELOC, you have zero cash reserves. If something breaks or a deal shows up, you go back to the bank and they might give you a new HELOC at 6.5 percent. That is worse.

There is a third option nobody mentioned. Instead of a CD, park that capital somewhere it grows tax-deferred and you can borrow against it anytime without losing the growth. A properly designed whole life policy does exactly this. Your cash value grows, you borrow against it to pay down the HELOC or fund a deal, and the full balance keeps compounding while the loan is out.

The real question is not pay off or keep. It is how do I make this 50k do more than one job at a time. That is where the math changes.

Theresa Harris · Answer

If you are paying more to borrow the money from the HELOC than you are earning from the same amount in the bank, pay it off.  If you were able to save $50K over a few years while also paying off the HELOC, you should be able to save that amount again and reduce the need for the HELOC down the road.

Jaycee Greene · Answer

Hey @Jimmy S., welcome to the BP Forum! Is the HELOC on your primary residence or an investment property per your tax return?

Jimmy S. · Answer

primary residence first lien. I used it to buy the land and then built a small home on it.

Payoff HELOC or keep my cash?

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