topic Re: Hypothetical plan involving investing money from a home equity loan in Personal Finance

Hypothetical plan involving investing money from a home equity loan

SoCalGardener — Tue, 06 Jul 2021 00:05:10 GMT

I just posted this in a totally unrelated thread (of mine, so I wasn't hijacking it!), then thought maybe I should post a thread of its own:

I get a ton of pre-approved home equity-related offers, ranging up to $1,000,000+. I immediately shred them. Oh, they're from great companies, most of which I do business with (Bank of America, Citibank, Discover), with low rates (2% to about 4.99%). But hell will freeze over before I do anything that puts a lien on this property. So into the shredder they go!

I will admit, though, that I've had an idea--and I'm sure everyone here will yell "TERRIBLE IDEA!! Don't ever do it!!" Here goes: I have an annuity at AIG that I opened in 1986; it pays 4% interest. Period. It's not variable. I can add or withdraw funds whenever I want, no fees, no penalties--and NO INCOME TAX on withdrawals (on the principal) because it was all taxed prior to being deposited. So I'm thinking....what if I got $100,000 maybe $300,000 at 2% or 2.5%, put it in my AIG account, let it sit there earning 4% interest for awhile (how long, I have no idea--I haven't let it go that far!), pay it back--or not (let my daughter deal with it when I die by using the AIG money), and make some money? All of these offers involve 0% upfront costs--no fees, no closing costs, no....whatever kind of fees usually are associated with this type of loan. The downside? Having a lien on my house, which I currently own free and clear.

What do you think? Is this an awful idea?

Re: Hypothetical plan involving investing money from a home equity loan

SouthJamaica — Tue, 06 Jul 2021 02:33:11 GMT

@SoCalGardener wrote:
I just posted this in a totally unrelated thread (of mine, so I wasn't hijacking it!), then thought maybe I should post a thread of its own:

I get a ton of pre-approved home equity-related offers, ranging up to $1,000,000+. I immediately shred them. Oh, they're from great companies, most of which I do business with (Bank of America, Citibank, Discover), with low rates (2% to about 4.99%). But hell will freeze over before I do anything that puts a lien on this property. So into the shredder they go!

I will admit, though, that I've had an idea--and I'm sure everyone here will yell "TERRIBLE IDEA!! Don't ever do it!!" Here goes: I have an annuity at AIG that I opened in 1986; it pays 4% interest. Period. It's not variable. I can add or withdraw funds whenever I want, no fees, no penalties--and NO INCOME TAX on withdrawals (on the principal) because it was all taxed prior to being deposited. So I'm thinking....what if I got $100,000 maybe $300,000 at 2% or 2.5%, put it in my AIG account, let it sit there earning 4% interest for awhile (how long, I have no idea--I haven't let it go that far!), pay it back--or not (let my daughter deal with it when I die by using the AIG money), and make some money? All of these offers involve 0% upfront costs--no fees, no closing costs, no....whatever kind of fees usually are associated with this type of loan. The downside? Having a lien on my house, which I currently own free and clear.

What do you think? Is this an awful idea?

I agree with the part of you who knows that it would be an awful idea to put a lien on your home, when you currently own it free and clear.

Re: Hypothetical plan involving investing money from a home equity loan

Horseshoez — Tue, 06 Jul 2021 02:56:52 GMT

I really don't see much difference between using a HELOC to finance additional investment or using margin trading; both will allow you to increase your investments, but if the market heads seriously south, in one scenario you may be forced to sell your house and in the other scenario you may be forced to liquidate some investments. Personally I think both are bad ideas unless you're a professional trader AND are very lucky.

Re: Hypothetical plan involving investing money from a home equity loan

tacpoly — Tue, 06 Jul 2021 03:42:01 GMT

@SoCalGardener wrote:
I just posted this in a totally unrelated thread (of mine, so I wasn't hijacking it!), then thought maybe I should post a thread of its own:

I get a ton of pre-approved home equity-related offers, ranging up to $1,000,000+. I immediately shred them. Oh, they're from great companies, most of which I do business with (Bank of America, Citibank, Discover), with low rates (2% to about 4.99%). But hell will freeze over before I do anything that puts a lien on this property. So into the shredder they go!

I will admit, though, that I've had an idea--and I'm sure everyone here will yell "TERRIBLE IDEA!! Don't ever do it!!" Here goes: I have an annuity at AIG that I opened in 1986; it pays 4% interest. Period. It's not variable. I can add or withdraw funds whenever I want, no fees, no penalties--and NO INCOME TAX on withdrawals (on the principal) because it was all taxed prior to being deposited. So I'm thinking....what if I got $100,000 maybe $300,000 at 2% or 2.5%, put it in my AIG account, let it sit there earning 4% interest for awhile (how long, I have no idea--I haven't let it go that far!), pay it back--or not (let my daughter deal with it when I die by using the AIG money), and make some money? All of these offers involve 0% upfront costs--no fees, no closing costs, no....whatever kind of fees usually are associated with this type of loan. The downside? Having a lien on my house, which I currently own free and clear.

What do you think? Is this an awful idea?

Wait, so you're saying that you have an annuity that pays you 4% annually guaranteed. And that you can borrow up to $1M from your home equity for <<4%. Based what you wrote, where's the risk?

Re: Hypothetical plan involving investing money from a home equity loan

iced — Tue, 06 Jul 2021 16:57:07 GMT

You aren't being taxed on payments that come out of principal, but that 4% interest is going to be taxable when its withdrawn. Depending on the HELOC rate, state you live in, and income bracket you're at when that happens, this could be minimal returns or even a wash.

If you have the means to repay the HELOC and the time to wait it out, that extra income is likely better served going straight into investments that will return >4% over the long haul, and without the 2-2.5% interest rate eating into profits.

Re: Hypothetical plan involving investing money from a home equity loan

SoCalGardener — Tue, 06 Jul 2021 17:18:12 GMT

@tacpoly wrote:
Wait, so you're saying that you have an annuity that pays you 4% annually guaranteed. And that you can borrow up to $1M from your home equity for <<4%. Based what you wrote, where's the risk?

Yep, that's exactly what I'm saying. That annuity was the single best investment I ever made. I have my former employer to thank for that. He's the one who brought in the AIG guy who gave those of us who were interested his spiel, and I signed up immediately; money was automatically deposited via payroll deductions, and since income tax had already been paid, as I noted there's no income tax when I withdraw principal now.

In later years, when I had much more disposable income--and could afford to gamble a little--I played around (badly) in the stock market, and tried various other investments, including a Wells Fargo fund that did really, really well. But overall, that AIG account is far and away the best investment I ever made. I never tapped into it until my recent illness; thank goodness I had the money to pay those bills (greater than $100,000 out-of-pocket)!

As for the dollar amounts, my house is worth approximately $1.7M; the offers I've received state loan amounts ranging from $35,000 to $1,000,000 or more. When I'm playing this hypothetical plan in my head, I never go anywhere NEAR seven figures! I'm thinking in terms of what would be manageable, either by me or my daughter, when the time comes to pay it off.

The risk? I can't explain the fear I feel about having a lien on the house. Even though I'd KNOW the money was safely sitting in my account and could be paid back at any time, I'm just scared.

Re: Hypothetical plan involving investing money from a home equity loan

SoCalGardener — Tue, 06 Jul 2021 17:21:37 GMT

@iced wrote:
You aren't being taxed on payments that come out of principal, but that 4% interest is going to be taxable when its withdrawn. Depending on the HELOC rate, state you live in, and income bracket you're at when that happens, this could be minimal returns or even a wash.

If you have the means to repay the HELOC and the time to wait it out, that extra income is likely better served going straight into investments that will return >4% over the long haul, and without the 2-2.5% interest rate eating into profits.

FWIW, these are not HELOCs, they're home equity loans. Since I have no experience with either, I'm not sure how important that distinction is!

I'm in California. If I left it for my daughter to deal with, I have no idea how income tax would factor in. If I REALLY decided to do this, my first stop will be my estate attorney's office. I wouldn't do anything that jeopardizes ownership of this property without consulting him first.

Re: Hypothetical plan involving investing money from a home equity loan

iced — Tue, 06 Jul 2021 17:28:20 GMT

@SoCalGardener wrote:
@iced wrote:
You aren't being taxed on payments that come out of principal, but that 4% interest is going to be taxable when its withdrawn. Depending on the HELOC rate, state you live in, and income bracket you're at when that happens, this could be minimal returns or even a wash.

If you have the means to repay the HELOC and the time to wait it out, that extra income is likely better served going straight into investments that will return >4% over the long haul, and without the 2-2.5% interest rate eating into profits.
FWIW, these are not HELOCs, they're home equity loans. Since I have no experience with either, I'm not sure how important that distinction is!

I'm in California. If I left it for my daughter to deal with, I have no idea how income tax would factor in. If I REALLY decided to do this, my first stop will be my estate attorney's office. I wouldn't do anything that jeopardizes ownership of this property without consulting him first.

That's certainly a big piece of this. You're talking about throwing a lien on a property in return for gains that are unlikely to even beat the rate of inflation after interest and state/federal income taxes.

Re: Hypothetical plan involving investing money from a home equity loan

SoCalGardener — Tue, 06 Jul 2021 18:19:54 GMT

@iced wrote:
That's certainly a big piece of this. You're talking about throwing a lien on a property in return for gains that are unlikely to even beat the rate of inflation after interest and state/federal income taxes.

I don't pay any state or federal income taxes. I'm very lucky in that the way I planned my retirement (even though it came much sooner than expected), the majority of my income isn't taxable. For example, my monthly Social Security benefits can't be taxed. When I withdraw money from AIG, it can't be taxed (yet), and even when it can, it won't raise my taxable income to the threshold of having to file taxes.

But I am concerned about any possible tax implications a loan like this could create. Again, though, if I really wanted to do this, or if I actually got to the point of seriously considering it, my first stop would be an appointment with my estate attorney.

Re: Hypothetical plan involving investing money from a home equity loan

tcbofade — Tue, 06 Jul 2021 20:17:23 GMT

@SoCalGardener wrote:
@tacpoly wrote:
Wait, so you're saying that you have an annuity that pays you 4% annually guaranteed. And that you can borrow up to $1M from your home equity for <<4%. Based what you wrote, where's the risk?
Yep, that's exactly what I'm saying. That annuity was the single best investment I ever made. I have my former employer to thank for that. He's the one who brought in the AIG guy who gave those of us who were interested his spiel, and I signed up immediately; money was automatically deposited via payroll deductions, and since income tax had already been paid, as I noted there's no income tax when I withdraw principal now.

In later years, when I had much more disposable income--and could afford to gamble a little--I played around (badly) in the stock market, and tried various other investments, including a Wells Fargo fund that did really, really well. But overall, that AIG account is far and away the best investment I ever made. I never tapped into it until my recent illness; thank goodness I had the money to pay those bills (greater than $100,000 out-of-pocket)!

As for the dollar amounts, my house is worth approximately $1.7M; the offers I've received state loan amounts ranging from $35,000 to $1,000,000 or more. When I'm playing this hypothetical plan in my head, I never go anywhere NEAR seven figures! I'm thinking in terms of what would be manageable, either by me or my daughter, when the time comes to pay it off.

The risk? I can't explain the fear I feel about having a lien on the house. Even though I'd KNOW the money was safely sitting in my account and could be paid back at any time, I'm just scared.

The good news, you just answered your own question!

Whatever amount you might profit is NOT worth the loss of sleep and/or fear.

It's a great idea and MAY be profitable, but not worth creating worry that you don't have.

I vote that you pass.

Re: Hypothetical plan involving investing money from a home equity loan

SoCalGardener — Tue, 06 Jul 2021 20:24:32 GMT

@tcbofade wrote:
@SoCalGardener wrote:
@tacpoly wrote:
Wait, so you're saying that you have an annuity that pays you 4% annually guaranteed. And that you can borrow up to $1M from your home equity for <<4%. Based what you wrote, where's the risk?
Yep, that's exactly what I'm saying. That annuity was the single best investment I ever made. I have my former employer to thank for that. He's the one who brought in the AIG guy who gave those of us who were interested his spiel, and I signed up immediately; money was automatically deposited via payroll deductions, and since income tax had already been paid, as I noted there's no income tax when I withdraw principal now.

In later years, when I had much more disposable income--and could afford to gamble a little--I played around (badly) in the stock market, and tried various other investments, including a Wells Fargo fund that did really, really well. But overall, that AIG account is far and away the best investment I ever made. I never tapped into it until my recent illness; thank goodness I had the money to pay those bills (greater than $100,000 out-of-pocket)!

As for the dollar amounts, my house is worth approximately $1.7M; the offers I've received state loan amounts ranging from $35,000 to $1,000,000 or more. When I'm playing this hypothetical plan in my head, I never go anywhere NEAR seven figures! I'm thinking in terms of what would be manageable, either by me or my daughter, when the time comes to pay it off.

The risk? I can't explain the fear I feel about having a lien on the house. Even though I'd KNOW the money was safely sitting in my account and could be paid back at any time, I'm just scared.
The good news, you just answered your own question!

Whatever amount you might profit is NOT worth the loss of sleep and/or fear.

It's a great idea and MAY be profitable, but not worth creating worry that you don't have.

I vote that you pass.

Thank you! I think that's what I wanted to hear all along. As I said from the get-go, it's the response I expected to hear, but I also think it's what I WANTED to hear!

Re: Hypothetical plan involving investing money from a home equity loan

tnhomestead — Wed, 07 Jul 2021 19:31:31 GMT

A. When in doubt, don't.

B. As someone who spent a winter in Illinois in a sleeping bag and tent, never risk your residence.

C. Winter in a tent sucks!

D. When in doubt, read A and B.

Re: Hypothetical plan involving investing money from a home equity loan

Anonymous — Fri, 09 Jul 2021 13:26:54 GMT

@SoCalGardener wrote:
@tcbofade wrote:
@SoCalGardener wrote:
@tacpoly wrote:
Wait, so you're saying that you have an annuity that pays you 4% annually guaranteed. And that you can borrow up to $1M from your home equity for <<4%. Based what you wrote, where's the risk?
Yep, that's exactly what I'm saying. That annuity was the single best investment I ever made. I have my former employer to thank for that. He's the one who brought in the AIG guy who gave those of us who were interested his spiel, and I signed up immediately; money was automatically deposited via payroll deductions, and since income tax had already been paid, as I noted there's no income tax when I withdraw principal now.

In later years, when I had much more disposable income--and could afford to gamble a little--I played around (badly) in the stock market, and tried various other investments, including a Wells Fargo fund that did really, really well. But overall, that AIG account is far and away the best investment I ever made. I never tapped into it until my recent illness; thank goodness I had the money to pay those bills (greater than $100,000 out-of-pocket)!

As for the dollar amounts, my house is worth approximately $1.7M; the offers I've received state loan amounts ranging from $35,000 to $1,000,000 or more. When I'm playing this hypothetical plan in my head, I never go anywhere NEAR seven figures! I'm thinking in terms of what would be manageable, either by me or my daughter, when the time comes to pay it off.

The risk? I can't explain the fear I feel about having a lien on the house. Even though I'd KNOW the money was safely sitting in my account and could be paid back at any time, I'm just scared.
The good news, you just answered your own question!

Whatever amount you might profit is NOT worth the loss of sleep and/or fear.

It's a great idea and MAY be profitable, but not worth creating worry that you don't have.

I vote that you pass.
Thank you! I think that's what I wanted to hear all along. As I said from the get-go, it's the response I expected to hear, but I also think it's what I WANTED to hear!

I think for me it's more potential gains vs the downsides, in your case the psychological impact. If the AIG was say 20%, I for one would say "Do it and learn to deal with the fear!"

Re: Hypothetical plan involving investing money from a home equity loan

tcbofade — Fri, 09 Jul 2021 19:53:37 GMT

@Anonymous You are not wrong, but I could not disagree with you more.

No potential return is worth living in fear. (for me!)

Re: Hypothetical plan involving investing money from a home equity loan

Anonymous — Fri, 09 Jul 2021 22:42:25 GMT

@tcbofade wrote:
@Anonymous You are not wrong, but I could not disagree with you more.

No potential return is worth living in fear. (for me!)

Well, a lot can go wrong in life (is that really the moon above you, or an astroid that's about to crash and destroy the earth? Is your job what you really think it is, or is it a front for a criminal enterprise and you are about to put in prison, however unfairly, for life?) yet we carry on making day to day decisions. So I think the real trick is to decide what should properly be feared, which to my mind comes down to likelihood and impact of the event, which can then be balanced against the perceived benefit if the bad thing doesn't happen. So while having a lien on your house isn't risk free, if the payoff was big enough I could learn to accept!

Re: Hypothetical plan involving investing money from a home equity loan

SoCalGardener — Sat, 10 Jul 2021 18:01:58 GMT

In this hypothetical discussion, while I lean HEAVILY on the side of 'no potential reward is good enough to justify living in fear,' I do understand the point that if the interest to be earned was, say 20%, that could be a good reason to do it. Of course, ALL of this assumes that we're dealing with long-established, stable, responsible banks, like the ones I named in my OP, not some fly-by-night, too-good-to-be-true newcomer.

*IF* I did this, because the interest income was going to be REALLY high, knowing that the lien on my house was from Bank of America or some other well-known, reputable financial institution would make me at least reasonably comfortable.

But I'm still unlikely to EVER actually do it!!

Re: Hypothetical plan involving investing money from a home equity loan

tacpoly — Sat, 10 Jul 2021 20:17:42 GMT

@Anonymous wrote:
@tcbofade wrote:
@Anonymous You are not wrong, but I could not disagree with you more.

No potential return is worth living in fear. (for me!)
Well, a lot can go wrong in life (is that really the moon above you, or an astroid that's about to crash and destroy the earth? Is your job what you really think it is, or is it a front for a criminal enterprise and you are about to put in prison, however unfairly, for life?) yet we carry on making day to day decisions. So I think the real trick is to decide what should properly be feared, which to my mind comes down to likelihood and impact of the event, which can then be balanced against the perceived benefit if the bad thing doesn't happen. So while having a lien on your house isn't risk free, if the payoff was big enough I could learn to accept!

But in this hypothetical situation there is NO RISK: the money borrowed will sit in an account earning an interest higher than the borrowing interest rate. OP says that he will be able to withdraw any amount at any time without any fees. So where's the risk? Sure, the earnings may be meager, but they are guaranteed earnings. There are very few investments with no downside - there isn't really much opportunity cost because OP would be using borrowed funds to earn 1-2%. (It wouldn't be advisable invest the borrowed funds in anything riskier, for instance.)

Everyone advising OP not to do it is not evaluating this hypothetical correctly. Now it could be that OP hasn't presented or understood the situation correctly and that there are risks he is unaware of or hasn't disclosed. But based on what OP wrote, I would take as much as the bank is willing to give me at a low interest and sock it in that fixed annuity earning 1-2% until the bank wants their money back. And I would sleep soundly while earning interest off someone else's money. There are very few times when one is presented such opportunities. It's why good arbitrageurs are so well compensated.

Re: Hypothetical plan involving investing money from a home equity loan

SoCalGardener — Sat, 10 Jul 2021 22:43:13 GMT

@tacpoly wrote:
But in this hypothetical situation there is NO RISK: the money borrowed will sit in an account earning an interest higher than the borrowing interest rate. OP says that he will be able to withdraw any amount at any time without any fees. So where's the risk? Sure, the earnings may be meager, but they are guaranteed earnings. There are very few investments with no downside - there isn't really much opportunity cost because OP would be using borrowed funds to earn 1-2%. (It wouldn't be advisable invest the borrowed funds in anything riskier, for instance.)

Everyone advising OP not to do it is not evaluating this hypothetical correctly. Now it could be that OP hasn't presented or understood the situation correctly and that there are risks he is unaware of or hasn't disclosed. But based on what OP wrote, I would take as much as the bank is willing to give me at a low interest and sock it in that fixed annuity earning 1-2% until the bank wants their money back. And I would sleep soundly while earning interest off someone else's money. There are very few times when one is presented such opportunities. It's why good arbitrageurs are so well compensated.

I really appreciate your opposing point of view! Thanks.

I don't think I've left anything out, nothing important anyway. My annuity pays 4% interest; I receive quarterly statements that show the money adding up; I can withdraw anything without fees or penalties, and I can withdraw *principal* without paying income tax. When it reaches the point where the original principal is gone, then its withdrawals might be taxable--depending on my overall scheme of things financially.

The offers I'm referring to, and mentioned in my OP, have no fees of any kind. So I would be out $0 to get a loan of whatever amount I chose, up to more than $1M. I have absolutely no personal experience with home equity loans or HELOCs, so I'm not clear on how the repayment would work considering I'd IMMEDIATELY withdraw all (or most) of the loan funds, to put in my annuity. But even if repayment started immediately, if we're talking less than 2% interest on the payments, while the money is sitting in my account earning 4%, I don't know, but to me it sounds plausible!

The thing about the lien, and I have a feeling others in this thread picked up on it, is that I own my home outright, and the idea of it even possibly, remotely, very unlikely being lost is what worries me. Sick. Just the thought of having a lien hanging over my head, after years of financial worries, climbing various ladders, jumping through various hoops, struggling at times, and worrying....worrrying....worrying.......I don't want to go there.

During this pandemic, even though I already knew how blessed I am, it was really driven home when millions of people lost their jobs, homes, etc. Good grief, seeing hard-working, middle-class people who've always supported themselves and their families, lining up for food handouts was really sad. I kind of feel like I'd be a world-class idiot for introducing ANY risk of losing my home, no matter how small.

Re: Hypothetical plan involving investing money from a home equity loan

tacpoly — Sun, 11 Jul 2021 00:01:51 GMT

@SoCalGardener wrote:
@tacpoly wrote:
But in this hypothetical situation there is NO RISK: the money borrowed will sit in an account earning an interest higher than the borrowing interest rate. OP says that he will be able to withdraw any amount at any time without any fees. So where's the risk? Sure, the earnings may be meager, but they are guaranteed earnings. There are very few investments with no downside - there isn't really much opportunity cost because OP would be using borrowed funds to earn 1-2%. (It wouldn't be advisable invest the borrowed funds in anything riskier, for instance.)

Everyone advising OP not to do it is not evaluating this hypothetical correctly. Now it could be that OP hasn't presented or understood the situation correctly and that there are risks he is unaware of or hasn't disclosed. But based on what OP wrote, I would take as much as the bank is willing to give me at a low interest and sock it in that fixed annuity earning 1-2% until the bank wants their money back. And I would sleep soundly while earning interest off someone else's money. There are very few times when one is presented such opportunities. It's why good arbitrageurs are so well compensated.
I really appreciate your opposing point of view! Thanks.

I don't think I've left anything out, nothing important anyway. My annuity pays 4% interest; I receive quarterly statements that show the money adding up; I can withdraw anything without fees or penalties, and I can withdraw *principal* without paying income tax. When it reaches the point where the original principal is gone, then its withdrawals might be taxable--depending on my overall scheme of things financially.

The offers I'm referring to, and mentioned in my OP, have no fees of any kind. So I would be out $0 to get a loan of whatever amount I chose, up to more than $1M. I have absolutely no personal experience with home equity loans or HELOCs, so I'm not clear on how the repayment would work considering I'd IMMEDIATELY withdraw all (or most) of the loan funds, to put in my annuity. But even if repayment started immediately, if we're talking less than 2% interest on the payments, while the money is sitting in my account earning 4%, I don't know, but to me it sounds plausible!

The thing about the lien, and I have a feeling others in this thread picked up on it, is that I own my home outright, and the idea of it even possibly, remotely, very unlikely being lost is what worries me. Sick. Just the thought of having a lien hanging over my head, after years of financial worries, climbing various ladders, jumping through various hoops, struggling at times, and worrying....worrrying....worrying.......I don't want to go there.

During this pandemic, even though I already knew how blessed I am, it was really driven home when millions of people lost their jobs, homes, etc. Good grief, seeing hard-working, middle-class people who've always supported themselves and their families, lining up for food handouts was really sad. I kind of feel like I'd be a world-class idiot for introducing ANY risk of losing my home, no matter how small.

Think about it this way: this is exactly what banks (or credit unions) do with customer deposits. They pay their customers low interest rates, then lend these customers' money out at higher interest and pocket the difference. For them there is a risk in that the people they lend to may not pay them back, but in the situation you are positing, the borrower is you. There is no situation when you can't pay the loan back because the money is sitting in your annuity earning interest, but ready to be withdrawn at any time. Who cares if there's a lien on your house -- you're holding all the cards! Loan pay-off doesn't depend on you holding down a job (according to you) or anything outside your control.

I acknowledge your fear, so I wouldn't recommend you actually borrow anything. All I'm saying is that a dispassionate analysis of this scenario you gave us shows there is no risk.

Re: Hypothetical plan involving investing money from a home equity loan

SoCalGardener — Sun, 11 Jul 2021 01:02:08 GMT

@tacpoly wrote:
@SoCalGardener wrote:
@tacpoly wrote:
But in this hypothetical situation there is NO RISK: the money borrowed will sit in an account earning an interest higher than the borrowing interest rate. OP says that he will be able to withdraw any amount at any time without any fees. So where's the risk? Sure, the earnings may be meager, but they are guaranteed earnings. There are very few investments with no downside - there isn't really much opportunity cost because OP would be using borrowed funds to earn 1-2%. (It wouldn't be advisable invest the borrowed funds in anything riskier, for instance.)

Everyone advising OP not to do it is not evaluating this hypothetical correctly. Now it could be that OP hasn't presented or understood the situation correctly and that there are risks he is unaware of or hasn't disclosed. But based on what OP wrote, I would take as much as the bank is willing to give me at a low interest and sock it in that fixed annuity earning 1-2% until the bank wants their money back. And I would sleep soundly while earning interest off someone else's money. There are very few times when one is presented such opportunities. It's why good arbitrageurs are so well compensated.
I really appreciate your opposing point of view! Thanks.

I don't think I've left anything out, nothing important anyway. My annuity pays 4% interest; I receive quarterly statements that show the money adding up; I can withdraw anything without fees or penalties, and I can withdraw *principal* without paying income tax. When it reaches the point where the original principal is gone, then its withdrawals might be taxable--depending on my overall scheme of things financially.

The offers I'm referring to, and mentioned in my OP, have no fees of any kind. So I would be out $0 to get a loan of whatever amount I chose, up to more than $1M. I have absolutely no personal experience with home equity loans or HELOCs, so I'm not clear on how the repayment would work considering I'd IMMEDIATELY withdraw all (or most) of the loan funds, to put in my annuity. But even if repayment started immediately, if we're talking less than 2% interest on the payments, while the money is sitting in my account earning 4%, I don't know, but to me it sounds plausible!

The thing about the lien, and I have a feeling others in this thread picked up on it, is that I own my home outright, and the idea of it even possibly, remotely, very unlikely being lost is what worries me. Sick. Just the thought of having a lien hanging over my head, after years of financial worries, climbing various ladders, jumping through various hoops, struggling at times, and worrying....worrrying....worrying.......I don't want to go there.

During this pandemic, even though I already knew how blessed I am, it was really driven home when millions of people lost their jobs, homes, etc. Good grief, seeing hard-working, middle-class people who've always supported themselves and their families, lining up for food handouts was really sad. I kind of feel like I'd be a world-class idiot for introducing ANY risk of losing my home, no matter how small.
Think about it this way: this is exactly what banks (or credit unions) do with customer deposits. They pay their customers low interest rates, then lend these customers' money out at higher interest and pocket the difference. For them there is a risk in that the people they lend to may not pay them back, but in the situation you are positing, the borrower is you. There is no situation when you can't pay the loan back because the money is sitting in your annuity earning interest, but ready to be withdrawn at any time. Who cares if there's a lien on your house -- you're holding all the cards! Loan pay-off doesn't depend on you holding down a job (according to you) or anything outside your control.

I acknowledge your fear, so I wouldn't recommend you actually borrow anything. All I'm saying is that a dispassionate analysis of this scenario you gave us shows there is no risk.

Again, thank you for your thoughtful reply. I really appreciate that you're using cold hard facts--which is what I've relied on all my life, logic, facts, black-and-white figures, etc., and taking the emotion out of it.The fact is, if I dropped dead the day after taking out the loan--or 10 years later--the money would be there to pay it off, whether I'm the one writing the check or my daughter is.

Looking at it your way, which is the objective way!, you're right, there is no risk. My problem is *my* problem! My memory of really bad times, not knowing how we were going to keep a roof over our heads. I can't shake that, even though it's many decades removed now.