Arbitrage Free Money With a HELOC Loan!

“Arbitrage” is the word for investing borrowed money at higher rates of interest than you pay the lender. Banks and other financial institutions profit from arbitrage by borrowing funds from depositors at one rate and loaning the money to home buyers and businesses at significantly higher rates.

A HELOC loan can be used to earn arbitrage profits in a couple of ways. First, since HELOC loans typically carry relatively low interest rates, it is possible to simply take HELOC loan funds and invest in stocks, real estate or other high-yield investments and earn a profit. Many people successfully do this, but the risks are enormous and this strategy should be left to persons with plenty of reserve cash. Remember, it is your home that is at risk.

There is a second, virtually riskless way to invest home equity and earn arbitrage profits. The following example illustrates how this strategy works: 1) John is approved for a new credit card (say, $15,500 limit) offering 0% interest for 12 months on balance transfers; 2) using a HELOC loan check, John buys a 12-month FDIC insured $15,000 CD from his bank paying 2.75%; 3) next, taking advantage of the 0% balance transfer offer, John immediately pays off the HELOC loan avoiding interest charges; 4) during the 12-month 0% period, John is careful not to use his credit card for any purchases and is also careful to make the required minimum monthly payments (typically, 2% of the balance outstanding); 5) finally, at the end of the 12-month period the CD matures, John pays off the remaining credit card balance, and pockets a $400 arbitrage profit.