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Cheap Borrowing


AccentricInv
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I've been thinking recently of ways to lock in today's low interest rates, to have dry powder in case the market crashes in the medium term.

 

Are there anyways good ways to do this without having to pay interest on the unused portion?  For example, like a HELOC but with a fixed instead of variable rate, where you only pay interest on the amount you withdraw.

 

Any other suggestions?

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Cash out 30 year home mortgage refi is about the best you can do for an individual.  You pay interest starting now, but it's crazy cheap and tax deductible in the United States.  Berkshire / Heinz / Kraft selling bonds the last few days is about the best you can do if you are an institution.

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I use debt consolidation offers from my credit card companies to borrow at low rates for 12-18 months. I only do this with small amounts (relative to my portfolio) though due to the risks involved.

 

As an example, I currently have about 10k invested that I got from my Chase credit card at 2%. Every 12 months I roll this to another available card through whatever balance transfer offer they have available. Generally the interest rates are 2-4% on my different credit cards depending on the current deal availability. Once the balance is rolled, I remove that card from my wallet and don't use it for a year since you have to pay down the low rate balance before any high-rate balance is reduced. I've done this multiple times over the last 6 or 7 years for different types of borrowing - I even financed several thousand of a car purchase this way since the 2% interest rate was lower than the 6-7% the car company was charging me.

 

Benefits: Consistently one of the cheapest ways to borrow 10-15k of non-callable, non-secured money at 2-4%.

Risks: Duration mismatch between borrowings and investments and potential inability to roll the amount. Keep the balance small relative to your portfolio to manage this risk.

 

I do this because it's the only form of debt I have outside of a small amount of margin debt, and it's a much cheaper substitution for margin debt through Scottrade.

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I use debt consolidation offers from my credit card companies to borrow at low rates for 12-18 months. I only do this with small amounts (relative to my portfolio) though due to the risks involved.

 

As an example, I currently have about 10k invested that I got from my Chase credit card at 2%. Every 12 months I roll this to another available card through whatever balance transfer offer they have available. Generally the interest rates are 2-4% on my different credit cards depending on the current deal availability. Once the balance is rolled, I remove that card from my wallet and don't use it for a year since you have to pay down the low rate balance before any high-rate balance is reduced. I've done this multiple times over the last 6 or 7 years for different types of borrowing - I even financed several thousand of a car purchase this way since the 2% interest rate was lower than the 6-7% the car company was charging me.

 

Benefits: Consistently one of the cheapest ways to borrow 10-15k of non-callable, non-secured money at 2-4%.

Risks: Duration mismatch between borrowings and investments and potential inability to roll the amount. Keep the balance small relative to your portfolio to manage this risk.

 

I do this because it's the only form of debt I have outside of a small amount of margin debt, and it's a much cheaper substitution for margin debt through Scottrade.

 

It never ceases to amaze me the ingenuity that members of the board come up with in regards to personal finances.  ;D

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I've done the CC trick in the past. I loved it when Chase was doing 0% for years around 2000 or so. They wised up at some point.

 

Yeah, like Buffett said, get a large 30y mortgage. Preferably on a house in Florida/Atlanta, preferably in 2010 (ah drats, I got the mortgage, but I did not get second house with second mortgage in Florida, missed that one).

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I've done the CC trick in the past. I loved it when Chase was doing 0% for years around 2000 or so. They wised up at some point.

 

Yeah, like Buffett said, get a large 30y mortgage. Preferably on a house in Florida/Atlanta, preferably in 2010 (ah drats, I got the mortgage, but I did not get second house with second mortgage in Florida, missed that one).

 

If you can get it and can manage it safely, I/O ARMs are crazy cheap.

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I recently did the following to free up cash.

 

Had a vehicle buyback due to issues that was paid in cash.  Took the cash and set it aside in case a recession occurs.  I mean shit would have to be awesome cheap to deploy that capital.

 

Financed a car (downsized) for 100% of the purchase value at 2.3% can easily cover with salary and will still be able to set aside money for savings.

 

Thinking is, the last time I was taking out loans was Feb of 09 and was having to pay 7% for the loans (unsecured) through friends and family.  This allows me to a little leverage if things get bad.  The loan is not tied to any securities so I don't have to worry about a margin call. 

 

I don't own a house so I can't tap a HELOC or anything like that. 

 

If anyone has any ideas on rates under 3% I'm all ears. 

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