HELOC for MO's

Old Aug 15, 19, 10:18 pm
  #1  
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HELOC for MO's

Here is an idea - can anyone punch holes in it?

1. Get a home equity line of credit
2. On a monthly basis, borrow against it (say, low 5-figures)
3. Pay it off with money orders.

Ordinarily, a bank doesn't need a reason to drop your business. But if you have a contract with them for a line of credit (the typical period is 10 years in which you can draw money, after which you have to pay it off over time) I don't think they can just drop you without a good reasons. Likewise, I wonder if they can refuse payments that are in the form of money orders.

I'm sure there are reasons for which they can cancel the HELOC, for example maybe you declare bankruptcy, or are no longer the owner-occupant of the property. Likewise, they have a right to decline payments with good cause, like if it could be drug money. But I don't think they could decline payments merely because "We don't know what you're doing and we don't want to bother to know, just hit the highway" which is what banks typically do if you deposit too many MO's.

Thoughts?
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Old Aug 15, 19, 11:01 pm
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MS with HELOC

HELOC
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Old Aug 15, 19, 11:58 pm
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The issue lies with #1 . “Get a home equity line of credit.” A HELOC is a mortgage. You’re just not getting the cash up front in one lump payment. Instead it acts as a secured line of credit. This means you’re going to have closing costs just like a mortgage. It can be, and almost always is, several thousand dollars. That would make it not financially feasible.

​​​​​But... If you already have a HELOC it could work. Paying the loan with a service like Plastiq would work., but probably only during a promotion. You could make a payment, then transfer money from the HELOC to you checking and pay off your card. Or even possibly pay the card directly from the HELOC. It’s not as good of a return as the usual CC—>GC—>MO/Serve/Whatever liquidation route.
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Old Aug 16, 19, 8:54 am
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Most HELOC's involve minimal closing costs. I had one on my other home, which I moved out of 9 years ago but didn't sell, and the 10-year term expired. I couldn't get a new one since it was no longer owner-occupied. However, I just inherited a house with no mortgage, in which I live, so this only just became an option for me.
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Old Aug 16, 19, 11:55 am
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There are still costs. The bank is probably rolling them into the loan. Either by adding points or increasing the interest rate. Even if the bank uses a title company they own and waive all bank and title company fees, there are still plenty of fees. The mortgage has to be recorded with the courts. You have to get a survey. You have to get an appraisal. There are other fees too. None of those are waived or absorbed by the bank. They’re just added to your loan.
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Old Aug 16, 19, 12:42 pm
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It looks to me like several posters are confusing a Home Equity Loan (HEL) with a Home Equity Line of Credit (HELOC). Typically, a HEL is very similar to the first mortgage. Requires appraisal, etc, and you pay all the fees. HELs are fixed loans, for $x, disbursed at time of closing. For HELOCs, the bank absorbs most of the fees, appraisal might not be required (instead they use the state assessed value). HELOCs are lines of credit, you draw against it as needed, repay based on the terms of the line, and expire after so many years. The amount of credit line available can fluctuate based upon the value of the property and the amount of your first mortgage, so the bank can lower its exposure by reducing the credit line. They also typically have variable interest rates and that can be higher than a HEL interest rate.

At least this is the case in my area.
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Old Aug 19, 19, 7:23 am
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I'm a little confused. Where does the manufactured spending come into it? What are you gaining by borrowing money and paying it back with money orders? What am I missing?

Last edited by Bellacricket; Aug 20, 19 at 6:35 am
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Old Aug 20, 19, 7:10 pm
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Originally Posted by Bellacricket View Post
I'm a little confused. Where does the manufactured spending come into it? What are you gaining by borrowing money and paying it back with money orders? What am I missing?
For someone who doesn't have the resources to "float" large quantity of MS activity, a HELOC appears to provide that. But the loan is not free and negates, or closely zeroes out, the gains in points etc. And if you don't have the float, don't try to go big in this game. It's M.O.N.E.Y. and you'll still owe it if things go sideways.

In truth, you don't need a huge pile of cash to do a lot of MS. Just enough to cover the cards you made purchases with. Then switch to others the following month. Each card gives you ~25 day free loan, so you as long as you can eventually pay off everything you can rotate card usage, paying off "A" by charging on "B and liquidating, then payoff "B" by charging on "C" and liquidating. Eventually, the bill must come due. I payoff EVERYTHING to zero twice a year, just for my own sanity. But otherwise, it's just a rotation of sorts. A one-person Ponzi scheme, if you will... with my own money.
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Old Aug 20, 19, 7:31 pm
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Originally Posted by Bellacricket View Post
I'm a little confused. Where does the manufactured spending come into it? What are you gaining by borrowing money and paying it back with money orders? What am I missing?
For me, I looked into it because I was worried about depositing a bunch of MO at the bank. Especially MO that were "from myself, to myself". Making the MO out to a legitimate payee just seems better. But then I realized I wouldn't feel comfortable writing more than 1 or 2 MO per month to the HELOC either
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Old Aug 21, 19, 2:22 pm
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Originally Posted by PtsJunkieWI View Post
For someone who doesn't have the resources to "float" large quantity of MS activity, a HELOC appears to provide that. But the loan is not free and negates, or closely zeroes out, the gains in points etc. And if you don't have the float, don't try to go big in this game. It's M.O.N.E.Y. and you'll still owe it if things go sideways.

In truth, you don't need a huge pile of cash to do a lot of MS. Just enough to cover the cards you made purchases with. Then switch to others the following month. Each card gives you ~25 day free loan, so you as long as you can eventually pay off everything you can rotate card usage, paying off "A" by charging on "B and liquidating, then payoff "B" by charging on "C" and liquidating. Eventually, the bill must come due. I payoff EVERYTHING to zero twice a year, just for my own sanity. But otherwise, it's just a rotation of sorts. A one-person Ponzi scheme, if you will... with my own money.
Ponzi scheme makes it sound like fraud. A much more appropriate analogy comes from normal business practices: you have negative working capital. You receive cash from your "customers" a month before you owe payments to your "suppliers". This is one of the hidden engines behind Amazon's insane growth and absolute decimation of retail: they take your money as soon as you order your product, but don't pay suppliers for a month or more. When you do $200B+ in annual revenue from retail, this amounts to a $15-20B cushion of negative working capital (basically an interest-free loan) with which you can grow your business. This is also why Amazon could lose money for years without running out of cash--if you're growing revenue at 25% per year then you're also growing the size of your negative working capital, which effectively gives you the cash for more growth.
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