topic Re: PLOC vs CC for some home improvement in Personal Finance

HELOC vs PLOC

Anonymous — Sun, 20 Dec 2020 16:54:28 GMT

Hello Everyone!

Can someone explain the benefits and drawbacks of HELOC vs PLOC and why?

What do you use one for vs the other?

Which has a better interest rate? Payback? Credit score needed? Which bank/CU? I have so many questions 😁

PLOC vs CC for some home improvement

Anonymous — Sun, 20 Dec 2020 18:06:37 GMT

Which is better to use for a small home improvement <$20,000 PLOC or CC?

Re: PLOC vs CC for some home improvement

KJinNC — Sun, 20 Dec 2020 23:41:20 GMT

Probably whichever one has the lower interest rate, assuming you don't intend to PIF right away. They count similarly on credit reports, I think. I don't have a PLOC, but nearly got one to use for a motorcycle purchase, before someone here explained how it works and I decided to get an installment loan instead.

Edit: a "HELOC vs PLOC" thread got combined with a "PLOC vs CC" thread. My answer is re: "PLOC vs CC".

Re: PLOC vs CC for some home improvement

DaveInAZ — Mon, 21 Dec 2020 13:39:18 GMT

A HELOC has a much lower interest rate, my Penfed HELOC interest rate is currently 3.75%. BUT a HELOC requires an appraisal of your home's value that will cost you $400-500. But then most HELOCs are good for 15 years, so if you plan to keep your home for some time it works out over the long term. But if you may sell & move in a few years, a PLOC, Personal loan, or even a CC with 15-18 months 0% BT may be the better move.

Re: PLOC vs CC for some home improvement

iced — Mon, 21 Dec 2020 15:51:22 GMT

@DaveInAZ wrote:
A HELOC has a much lower interest rate, my Penfed HELOC interest rate is currently 3.75%. BUT a HELOC requires an appraisal of your home's value that will cost you $400-500. But then most HELOCs are good for 15 years, so if you plan to keep your home for some time it works out over the long term. But if you may sell & move in a few years, a PLOC, Personal loan, or even a CC with 15-18 months 0% BT may be the better move.

Would this still be true if the bank giving you the HELOC is the same that holds your mortgage? In such a case, they're already pretty aware of the home value and the equity you hold within it.

Not particularly interested in one myself, but I would be surprised if I asked Chase (my mortgage lender) for a HELOC and they came back asking for additonal information that they already had.

Re: HELOC vs PLOC

SouthJamaica — Tue, 22 Dec 2020 03:49:41 GMT

@Anonymous wrote:
Hello Everyone!
Can someone explain the benefits and drawbacks of HELOC vs PLOC and why?
What do you use one for vs the other?
Which has a better interest rate? Payback? Credit score needed? Which bank/CU? I have so many questions 😁

1. I don't recommend using HELOC's because I think it's a bad idea to borrow against your home.

2. HELOC's have lower interest rates than PLOC's.

3. I don't recommend that you borrow with PLOC's either. The interest rates are too high.

Re: HELOC vs PLOC

sxa001 — Tue, 22 Dec 2020 06:14:20 GMT

To answer the question on if it is better to use a credit card or PLOC for the home improvement work, I would go with the previous suggestion to find an 18 month 0% card if you would be able to pay it off in that time.

I agree with @SouthJamaica, borrowing against a home is something I would try to avoid at most every cost.

Is this work that you can save for? Sometimes patience is the best answer.

Re: PLOC vs CC for some home improvement

DaveInAZ — Tue, 22 Dec 2020 14:22:49 GMT

@iced wrote:
@DaveInAZ wrote:
A HELOC has a much lower interest rate, my Penfed HELOC interest rate is currently 3.75%. BUT a HELOC requires an appraisal of your home's value that will cost you $400-500. But then most HELOCs are good for 15 years, so if you plan to keep your home for some time it works out over the long term. But if you may sell & move in a few years, a PLOC, Personal loan, or even a CC with 15-18 months 0% BT may be the better move.
Would this still be true if the bank giving you the HELOC is the same that holds your mortgage? In such a case, they're already pretty aware of the home value and the equity you hold within it.

Not particularly interested in one myself, but I would be surprised if I asked Chase (my mortgage lender) for a HELOC and they came back asking for additonal information that they already had.

Property values fluctuate with the economy. With the current record low mortgage interest rates home values in most areas are rising. Maybe if you got your mortgage within the past few months, but if you want a home equity loan within a few months of getting a mortgage you should have just gotten a bigger mortgage.

As for those who think it's a bad idea to borrow against your home, it may be a bad idea if you use the money to buy something frivolous or something you really can't afford. But used wisely like home improvements etc. it can be a wise choice. I consider my mortgage & HELOC payment to be like rent, only usually a much better deal. You have to pay something for a place to live, and my mortgage/heloc payment is still much lower than I would pay to rent something in my area, so I'm happy.

Re: PLOC vs CC for some home improvement

SouthJamaica — Tue, 22 Dec 2020 22:25:47 GMT

@DaveInAZ wrote:
@iced wrote:
@DaveInAZ wrote:
A HELOC has a much lower interest rate, my Penfed HELOC interest rate is currently 3.75%. BUT a HELOC requires an appraisal of your home's value that will cost you $400-500. But then most HELOCs are good for 15 years, so if you plan to keep your home for some time it works out over the long term. But if you may sell & move in a few years, a PLOC, Personal loan, or even a CC with 15-18 months 0% BT may be the better move.
Would this still be true if the bank giving you the HELOC is the same that holds your mortgage? In such a case, they're already pretty aware of the home value and the equity you hold within it.

Not particularly interested in one myself, but I would be surprised if I asked Chase (my mortgage lender) for a HELOC and they came back asking for additonal information that they already had.
Property values fluctuate with the economy. With the current record low mortgage interest rates home values in most areas are rising. Maybe if you got your mortgage within the past few months, but if you want a home equity loan within a few months of getting a mortgage you should have just gotten a bigger mortgage.

As for those who think it's a bad idea to borrow against your home, it may be a bad idea if you use the money to buy something frivolous or something you really can't afford. But used wisely like home improvements etc. it can be a wise choice. I consider my mortgage & HELOC payment to be like rent, only usually a much better deal. You have to pay something for a place to live, and my mortgage/heloc payment is still much lower than I would pay to rent something in my area, so I'm happy.

IMHO it's not a question of how "wisely" you use the money.

It's a question of risk.

When everything's hunky dory, yes it's lovely to "tap into the equity" of your home. But if one's financial circumstances turn against you, and/or the real estate situation turns against you, it's not great that you leveraged the place that you and your family live.

If you're very wealthy you don't need to borrow for home improvements.

If you're not very wealthy, all it takes is one illness, or accident, or loss of one's job, and the world can turn against you pretty fast.

The risk of foreclosure is not a pretty picture.

Re: PLOC vs CC for some home improvement

creditfan — Tue, 22 Dec 2020 23:49:46 GMT

I see everybody has their own points.

Everything always has bright and dark sides. No one size fits all.

If you are disciplined with your money, pay only what you needs and buy what you can afford then heloc is the way to go.

more things heloc can do and has

- can be used an emergency fund

- payoff your home faster with heloc using velocity banking method (youtube has many of them)

- investments

- low interest rates off course

I will say this again to avoid arguments maybe later happen in this topic because I have seen so many on youtube comments already.

*heloc maybe good for me but not for you because everybody has different situations, tastes and styles of seeing things

Re: PLOC vs CC for some home improvement

Citylights18 — Wed, 23 Dec 2020 12:23:31 GMT

One thing about a HELOC is you have to keep in mind the LTV and the LTV requirements are higher just like the refi requirements on a second home or investment property.

I decided then to take out a 50k HELOC on my primary home before turning it into an investment property. So long as I don't pay it off within 3 years its no closing costs. Then I have access to it for 15 years or so whereby I can draw funds again. The monthly minimum payment on 50k with my bank is only $400 dollars which is far less than a typical personal loan or credit card. PLOC might be a lot higher in this regard especially the interest rate.

PLOCs give you the most functionality when they are attached to your checking account for over draft. They are decent tools to help you with refinance as well. Say you have a 200,000 dollar property you own 170k on and you could get a really good rate term if you could get to 80% LTV on a refinance. You could take money from a PLOC, reduce your mortgage principal, refinance, then stack the new mortgage with a HELOC to payoff the PLOC for lower interest.

So in short PLOCs are designed to help manage cash flow while HELOCs are alternatives to personal loans.

Re: HELOC vs PLOC

Anonymous — Mon, 18 Jan 2021 11:07:19 GMT

Depends on what you're buying. HELOC is using your home as collateral, so you're taking a risk borrowing against it. Can be lucrative if you're borrowing to invest, but unnecessarily risky if you're borrowing to purchase a liability.

PELOC is unsecured, so much smarter to use for toys and pay off quickly IMO.

Re: HELOC vs PLOC

Namaste7 — Mon, 18 Jan 2021 15:52:47 GMT

If I had property, I'd probably have a HELOC and PLOC. Using the HELOC for expenses that I'd want to pay over time (leveraging a lower interest rate) and PLOC for checking account over draft ("OD") protection. Currenly, I have a PLOC with a local CU.

HELOC

PROS: Lower rates and typically higher credit lines
CONS: Tied to property
CONS: May have expiriation date (requires renewal)

PLOC

PROS: No security requirements / doesn't require homeownership
PROS: Can connect with a check account / provide over draft protection (go with a CU to avoid fees)
PROS: Typically does not have an expiration date (renewal not required)
CONS: Higher rates and lower credit lines (<25k)

Re: HELOC vs PLOC

Anonymous — Wed, 20 Jan 2021 15:39:58 GMT

Thank you everyone for all the advice and explaining to me the difference. We were able to save a lot of money by doing most of the renovation work ourselves. Since we were able to keep costs low (under $10,000) we just put it on a 0% promo credit card.

Re: HELOC vs PLOC

Revelate — Tue, 26 Jan 2021 04:36:55 GMT

HELOCs don't have a mandated appraisal fee, banks aren't required to do one unlike a purchase mortgage. Some refinances actually don't mandate an appraisal either.

This is true on 80% LTV HELOCs in my experiene, if we're talking 90% as some lenders do I suspect one is much more likely to get an appraisal and have to fork over the fee.

Either way a HELOC is just a financial tool like any other: used wisely they're the best thing going in terms of interest rate, nothing else really even comes close. A HELOC is my emergency fund currently, if something crazy comes up I can drop 27K into my checking account with a few strokes of my pen and a picture of the front and the back of the self-endorsed check and generally it clears the next day at least for me.

I compare that to tying up a ton of cash in my checking account when it could go to something better (even just paying down debts is much better than dead cash for me) for all that I have a chunk in cash today because I know my life is too expensive right now and until it gets tighter financially, bleh.

Re: PLOC vs CC for some home improvement

Anonymous — Thu, 28 Jan 2021 23:29:35 GMT

@SouthJamaica wrote:
@DaveInAZ wrote:
As for those who think it's a bad idea to borrow against your home, it may be a bad idea if you use the money to buy something frivolous or something you really can't afford. But used wisely like home improvements etc. it can be a wise choice. I consider my mortgage & HELOC payment to be like rent, only usually a much better deal. You have to pay something for a place to live, and my mortgage/heloc payment is still much lower than I would pay to rent something in my area, so I'm happy.
IMHO it's not a question of how "wisely" you use the money.

It's a question of risk.

When everything's hunky dory, yes it's lovely to "tap into the equity" of your home. But if one's financial circumstances turn against you, and/or the real estate situation turns against you, it's not great that you leveraged the place that you and your family live.

If you're very wealthy you don't need to borrow for home improvements.

If you're not very wealthy, all it takes is one illness, or accident, or loss of one's job, and the world can turn against you pretty fast.

The risk of foreclosure is not a pretty picture.

The same argument can be used about buying a house in the first place, you risk forclosure rather than "just" eviction from a rental. In some circumstances, just as owning can be cheaper than renting, using a HELOC can be much cheaper than the alternatives for needed/wanted improvements. Sure, you have to be aware of the risks, but that's always true.