Money/Mortgage/HELOC Advice Needed

[gs11rmb]

My husband and I want to do some repairs/upgrades around the house in the $20-25K range.  We do have the money but I'm reluctant to pull most of it out of our taxable account and pay taxes as well as lower our emergency fund.  I think I'd rather pay a small amount of interest.  I went online to get information on HELOC's and filled out the LendingTree application that would connect me to 5 different mortgage companies.  I did that on Tuesday at about 10 am and by the time I reached home and was talking to my husband at about 4.30 I'd received 42 separate phone calls  .  Those who also texted I responded and asked them to email.  

The advice from two different agents has been to refinance the entire mortgage.  I don't think that's a good deal but I don't know how to actually calculate those figures   and I was hoping someone here could help.  My current mortgage has 16 years left at 3.875% with a balance of $167,000 (PITI = $1,552) and we're not planning to move.  All figures below are for 15 year fixed rate mortgages with $25,000 cashout.

Option 1
Rate:    2.875%
PITI:    $1,730
Points:    2.5

Option 2
Rate:    3.875% (current)
PITI:    $1,827
Points:    0

Option 3
Rate:    4.375% (higher than current)
PITI:    $1,876
Credit:    $4,000 ("lender credit to cover everything")

FWIW, I think I can get a HELOC through my mortgage company with a 12 month rate of 3.99% but will become variable after one year.

Any assistance will be much appreciated!

[bean29]

My first mortgage is with a credit union.  Interest rate is about 2%

My second mortgage is with the same credit union. It was locked in at about 3.5%.  I make the last payment on it next month.

I needed $$ to fund DD's college so I have a third mortgage.  That one was floating at 1.95% or something for first year, and now it is floating at market.  I am not sure if they will open the rest of the line up or not - going to wait and see what they do.  We do plan to do more work on the house next year - new floors, new front walk, new front door, and maybe a window or two. 

I like dealing with this credit union, I probably won't shop around.  But when we wanted more $$ they said that since they had the first and the second they could do a third without paying off the second and us losing the lock in lower interest rate. 

I don't think I would pay off the first unless I had to - ie. if you mortgage balance is too low for someone to want to do the paperwork on a new loan.  I would think your best source for a HELOC would be your existing lender.  Also when they already hold the first, they probably won't need as extensive an appraisal, so they might waive  it or use a less involved cheaper appraisal method.

[Deleted]

I found one site that actually listed some sample HELOC rates and the 3.99% variable you mentioned looks ballpark.  Fixed HELOC rates are higher.

www.thebalance.com/best-heloc-rates-4176828

I was surprised at the difference but I suspect it's because an HELOC is secondary to your primary mortgage- in other words if you default, they have to wait in line and get whatever is left over after the first mortgage is paid.  Replacing the current mortgage with a cash-out refinancing means they're first in line.

So, unless you're willing to keep your current mortgage but pay a higher rate on the HELOC, a cash-out refinancing might be your best bet.

[Tiny]

I use my HELOC  as 'short term' debt - something I can pay off within a year or so.   With that idea in mind - think about how you will pay back the money you are using for the fix ups.  Also think about how you will use the money (20K quickly or will you be doing seasonal projects over the course of a year or more 5K here and there)?    That might help you decide if the cost of the HELOC is the way to go or not.    (In the past I did 25K worth of house repairs over the course of 18 months - with the highest balance on my HELOC being 12K.  I had it paid off within 24 months of the last "repair"). 

The nice thing about a HELOC is that you can use it over and over again.    Once you do a cash out refi you are done - if you need to access money again in 5 or 10 years - you'll have to do a heloc or a refi again. 

FWIW:   IF I was going to refinance my mortgage at a lower rate (than current) AND do a cash out - I'd go with as much  money as they'd give me and go 30 years.    I'd earmark the extra $$ for future house stuff over the next 15  to 20 years and get it saved/invested (and let it grow).   But that's me.   

added:  can you ask for a Estimate of Cost of the Loan document?    I just applied for a another mortgage for a second  home and this time around I got that document which itemized all the costs and whatnot.   

[gs11rmb]

Thanks everyone.  I decided not to pursue refinancing the entire mortgage.  I didn't like the idea of paying off $20K in home improvements over 15 years.  I'm going to pursue a HELOC and just pay it off over a couple of years.

[phil5185]

What Tiny said - borrow the max and for 30 years, fixed rate. A general rule - place your money at "its highest and best use". And prepaying mortgages is NOT a high use, quite the opposite.

[gs11rmb]

Oct 17, 2019 13:42:30 GMT -5 phil5185 said:

What Tiny said - borrow the max and for 30 years, fixed rate. A general rule - place your money at "its highest and best use". And prepaying mortgages is NOT a high use, quite the opposite.

We're not prepaying the mortgage.  It was originally a 30 year note when we bought in 2006.  We have refinanced twice to get a lower rate but haven't extended the pay-back time.  At the end of 30 years I'll be 62 and heading into retirement and my husband will be 71 and already retired.  I understand the mathematical reasoning but we really don't want a mortgage in retirement.