HELOC 5/5 ARM - too good to be true? What am I missing?

Question

Hi all - I'm looking to pull a HELOC to finance first property / properties out of state (I'm in Cali). Have about $400k in equity in home and considering starting with $100-200k HELOC to have funds available, and to only pay for what I use. I'm considering a 5/5 ARM HELOC (with PenFed) - the primary reason is because the rate seems low at 4.25% and locks for 5 years, rather than a conventional HELOC which adjusts annually and starts at a higher rate. Seems like a no-brainer.... BUT am I missing something - wouldn't be the first time :)?  What else should I be considering here? Any and all thoughts / advice / personal experience welcome.. thanks so much, Greg

Greg R. · Answer

Thanks again Tchaka..

Greg R. · Answer

Hi Caleb - I appreciate a different point of view. Would you mind breaking these 2 suggestions down a little?thanks!

Tchaka Owen · Answer

@Greg R.,

1. As a point of correction, a 'conventional' HELOC does not adjust annually. It changes with Prime so it can change 8 times per year (whenever the Fed meets).

2. Suggestion is that your reason for getting a HELOC is security or perhaps a little bit of home improvement, avoid saying that you're going to use it for REI. (i'm a PenFed member and was given that advice)

Good luck!

Tchaka Owen · Answer

True. However rates are near historic lows so you have a much greater chance of seeing an increase as opposed to a decrease, thus making a 5/5 even more appealing (as you mentioned).

Caleb Heimsoth · Answer

@Greg R. This is different from your question but I would recommend not doing a heloc at all and not investing out of state.

Greg R. · Answer

@Tchaka Owen - thanks for the pointer and correction on rate change up to 8 times a year. Even more reason why 5/5 rate lock is more appealing? Only down side I can see of 5/5 would be not benefiting from rate drop?

Kerry Baird · Answer

It is a great product~

HELOC 5/5 ARM - too good to be true? What am I missing?

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