HELOC vs PLOC

[Citylights18]

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.

[Anonymous]

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.

[Namaste7]

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)

[Anonymous]

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.

[Revelate]

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.

[Anonymous]

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@SouthJamaica wrote:

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@DaveInAZ wrote:

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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. 

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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.

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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.