HELOC

Old Jul 19, 18, 5:20 pm
  #1  
Original Poster
 
Join Date: Jul 2017
Programs: UR, Marriott, AA, WN, Chick Fil A Red
Posts: 172
HELOC

Does anyone have experience using a HELOC for MS? Plan would be to draw from line into checking, then a day or 2 later pay off the HELOC balance via in person MO. $40k per month goal once my serves get shut down. Is this a terrible idea?
NeGourmand is offline  
Old Jul 19, 18, 11:24 pm
  #2  
 
Join Date: Mar 2015
Posts: 18
Dunno if you're trolling, but I love it! Which banks offer HELOCs with no initial fee and no prepayment penalties?
ThisIs_MyName is offline  
Old Jul 20, 18, 8:57 am
  #3  
Original Poster
 
Join Date: Jul 2017
Programs: UR, Marriott, AA, WN, Chick Fil A Red
Posts: 172
Originally Posted by ThisIs_MyName View Post
Dunno if you're trolling, but I love it! Which banks offer HELOCs with no initial fee and no prepayment penalties?
Definitely not trolling, just havenít seen much discussion of this as an MS avenue. Annual fees are apparently waived for people with higher level checking package at a national (scandal plagued) bank. Not sure about prepayment penalty, guess I will have to talk to a banker
NeGourmand is offline  
Old Jul 20, 18, 9:29 am
  #4  
 
Join Date: Mar 2005
Programs: Continental Onepass, Hilton, Marriott, USAir and now UA
Posts: 3,287
Originally Posted by NeGourmand View Post
Does anyone have experience using a HELOC for MS? Plan would be to draw from line into checking, then a day or 2 later pay off the HELOC balance via in person MO. $40k per month goal once my serves get shut down. Is this a terrible idea?
i had no idea what a HELOC was until I Googled it. "Home Equity line of credit"
So this is what else I pulled off the internet about these loans.

"Typically, a line of credit has little or no closing costs. In contrast, a home equity loan will have similar closing costs to your first mortgage. However, home equity loans have the advantage of providing you money in a lump sum that you repay with a fixed interest rate for a fixed term, usually 10 or 15 years"

Closing costs for real estate loans are substantial and institution dependent. I would imagine furthermore that your credit will be checked to the nth degree given past history of 2nd mortgages and recessions I imagine that one has to have a pretty stellar financial picture in order to get a LOC rather than a home equity loan.

Why don't you show us a compelling argument (including costs) for using this as a vehicle for MS?

.
radonc1 is offline  
Old Jul 20, 18, 11:36 am
  #5  
Original Poster
 
Join Date: Jul 2017
Programs: UR, Marriott, AA, WN, Chick Fil A Red
Posts: 172
For the product Iím looking at, either the buyer can pay closing fees or the bank can pay them. Bank paid comes with a higher interest rate, which for my purposes wouldnít be an issue. It appears the only fees would be an annual fee of <$100 (which seems to be waivable) and early closure fee (which can be solved by just keeping it open) if one chooses the bank paid closing costs. Iím waiting to hear back regarding prepayment fees(if there are any.) The main issue Iím hoping to solve is being shut down for MO deposits. Havenít had that happen yet, but with current MC promotions and enough working serve cards, Iíve only needed to deposit up to $10k or so MO per month, but the volume will increase significantly if/when those other routes get closed.
NeGourmand is offline  
Old Jul 20, 18, 1:07 pm
  #6  
 
Join Date: Nov 2013
Location: SLC
Posts: 84
My HELOC charges interest on a daily balance, so I think you should double check that it won't cost you too much in interest.
MauiKauaiOahu is offline  
Old Jul 20, 18, 2:01 pm
  #7  
mia
FlyerTalk Evangelist, Moderator: American Express, Citi, Diners Club, Signatures
 
Join Date: Jun 2003
Location: Miami & London
Programs: AA & Marriott Perpetual Platinum; HH Gold
Posts: 38,640
We opened a HELOC last year. The documentation requirements are the same as for a mortgage. It was about a 60 day process.
mia is offline  
Old Jul 20, 18, 3:11 pm
  #8  
Original Poster
 
Join Date: Jul 2017
Programs: UR, Marriott, AA, WN, Chick Fil A Red
Posts: 172
Originally Posted by mia View Post
We opened a HELOC last year. The documentation requirements are the same as for a mortgage. It was about a 60 day process.
Have you used it for MS at all?
NeGourmand is offline  
Old Jul 20, 18, 5:00 pm
  #9  
A FlyerTalk Posting Legend
 
Join Date: Aug 2010
Location: DCA
Programs: UA US CO AA DL FL
Posts: 42,971
A HELOC is a second (or third or fourth) mortgage. No different than a first. It generally has different purposes but it is plain and simple mortgage.

Would require whatever the loan originator's documentation requirements are, e.g., appraisal, verified credit history, tax returns, and the like. Followed by underwriting process, title insurance, closing, and recording.

Some HELOC's are in the form of a product where the bank pays the closing costs up front but tacks that onto the principal. Thus, a $50K HELOC is issued as a note for $55K and typically a higher interest rate.

Check out the full product as the closing costs -- whether you pay them out of cash assets at closing or effectively borrow the money to pay them -- are not going to be measurably different than the closing costs on your original first mortgage.

Having the "bank pays" product is almost always a poor economic choice unless you need the equity out of the house ASAP to pay your kid's college tuition or the like and don't have the cash to pay for the closing.
Often1 is offline  
Old Jul 20, 18, 5:47 pm
  #10  
 
Join Date: Oct 2013
Posts: 1,113
If you are paying closing costs for a HELOC, you're really not trying. Lots of banks and credit unions offer no/low cost products. For example: "Bank of America pays all closing costs on lines up to and including $1,000,000. If you terminate your account within 36 months of opening it, you will be required to pay an Early Closure Fee consisting of (1) a $450 base fee, plus (2) any mortgage and government taxes, recording fees, and any closing agent or attorney fees Bank of America paid on your behalf. "
tuphat is offline  
Old Jul 20, 18, 9:59 pm
  #11  
mia
FlyerTalk Evangelist, Moderator: American Express, Citi, Diners Club, Signatures
 
Join Date: Jun 2003
Location: Miami & London
Programs: AA & Marriott Perpetual Platinum; HH Gold
Posts: 38,640
Originally Posted by NeGourmand View Post

Have you used it for MS at all?
No, we have not used the line of credit. I am only contributing the observation that the application process requires a substantial investment of time and documentation. If you are the type of person who thinks that some aspect of your financial life is off limits to a lender, you will not enjoy the process.

Originally Posted by Often1 View Post
A HELOC is a second (or third or fourth) mortgage. ....
Indeed, or it can be a first mortgage if there is no other lien on the property.

Last edited by mia; Jul 20, 18 at 10:07 pm
mia is offline  
Old Jul 21, 18, 2:41 pm
  #12  
 
Join Date: Mar 2005
Programs: Continental Onepass, Hilton, Marriott, USAir and now UA
Posts: 3,287
Originally Posted by NeGourmand View Post
For the product I’m looking at, either the buyer can pay closing fees or the bank can pay them. Bank paid comes with a higher interest rate, which for my purposes wouldn’t be an issue. It appears the only fees would be an annual fee of <$100 (which seems to be waivable) and early closure fee (which can be solved by just keeping it open) if one chooses the bank paid closing costs. I’m waiting to hear back regarding prepayment fees(if there are any.) The main issue I’m hoping to solve is being shut down for MO deposits. Haven’t had that happen yet, but with current MC promotions and enough working serve cards, I’ve only needed to deposit up to $10k or so MO per month, but the volume will increase significantly if/when those other routes get closed.
I can see numerous reasons why you might not consider this a MS vehicle.
First. Call them what you will (Heloc, 2nd mortgages, etc) but these are basically real estate loans made by a bank. As such, they have to follow certain federal rules since most banks will package and resell them. As stated above, you can be assured of a thorough financial analysis of your credit history and net worth. Since you have real estate, you know what that entails. And of course you will have to go through the loan application and approval process which is not only expensive but protracted. Stellar financials and credit is very helpful in these situations.
2. You will have substantial closing costs. Application fees, surveys and title searches. You may get out of paying for some of these, but I do not think that a bank will pay for them without extracting money from you in some other way (such as making you pay points or charging a substantially higher interest rate). And again, as noted above, sometimes the bank will simply roll the costs into the final loan amount when you make your first withdrawal on the CL.
3. Banks charge daily interest on borrowed money. So if your interest rate is 7.5%, the bank charges .075/360 (yes, they use a 360 day/year calendar!) or .0002083 (or .02083%) daily interest. This may not seem like much until you are borrowing $10,000 for 5 days (time it takes to get money, buy cards, cash in and deposit then pay off the loan) equals 5 x 10,000 x .0002083 or $10.42
4. While my LOC for my business is active (money coming in and out to pay for operating expenses and pay-offs on money borrowed) most people who borrow money on a HELOC are doing at most once a month or less and then making payments on the outstanding balance. How will a bank look at someone borrowing large sums of money on a weekly or sooner basis and then paying it off in full a week later. Throw on top of that the use of cash equivalents (namely MOs) and you have the potential of a rat fest in the making.

I think the biggest barriers to this idea is the upfront cost to set up the HELOC and the risk of closure when activity ramps up. However, if you do go this route, it would be fun to hear how everything worked out.
radonc1 is offline  
Old Jul 22, 18, 6:24 am
  #13  
 
Join Date: Jun 2001
Posts: 653
Originally Posted by NeGourmand View Post
Does anyone have experience using a HELOC for MS? Plan would be to draw from line into checking, then a day or 2 later pay off the HELOC balance via in person MO. $40k per month goal once my serves get shut down. Is this a terrible idea?
Are you buying GCs using a debit linked to your checking? I don't see the method for acquiring points/miles/CB.

Every CC you have is like a LOC free of charges and fees for ~50 days. Just wait for your CC to close and then MS with that CC. You'll have ~50 day to pay off the balance without interest charges. Of course you would want to know when your CC reports to the credit bureaus to keep your score from getting wacked.

Why mess with a HELOC.
gw14 is offline  
Old Jul 22, 18, 7:06 am
  #14  
 
Join Date: Sep 2014
Posts: 1,830
Originally Posted by gw14 View Post
Are you buying GCs using a debit linked to your checking? I don't see the method for acquiring points/miles/CB.

Every CC you have is like a LOC free of charges and fees for ~50 days. Just wait for your CC to close and then MS with that CC. You'll have ~50 day to pay off the balance without interest charges. Of course you would want to know when your CC reports to the credit bureaus to keep your score from getting wacked.

Why mess with a HELOC.
I think OP wants to use HELOC for MOs
lumangoy is offline  
Old Jul 22, 18, 7:18 am
  #15  
 
Join Date: Jun 2001
Posts: 653
Originally Posted by lumangoy View Post
I think OP wants to use HELOC for MOs
What would the point, to pay the MO fee? Where is the points/miles/CB gain?
gw14 is offline  

Thread Tools
Search this Thread