Refinace house but how?

Questions on how we spend our money and our time - consumer goods and services, home and vehicle, leisure and recreational activities
Post Reply
mort439
Posts: 25
Joined: Wed Aug 07, 2013 1:17 am

Refinace house but how?

Post by mort439 » Mon Oct 08, 2018 8:43 pm

Hi everyone, I have my parents house which was built in 1952. We have a family of five (3 young kids). We would like to do some updates to our house specifically finish the basement and bathroom. I believe it could cost around 30-40,000 to complete thses. I have one quote so far on basement. My question is how do i get the money? We refinanced our house several years ago at 3.25% with bi-weekly payments. Looking back I should of took the money then. Anyways if I try to get an equity loan for 40,000 the rate is almost 6%. I am the only major source of income and I would have to do the longest term of the loan to afford it. Do I just refinance the house again and take out the equity? Or get the equity loan? I appreciate this site and all of you for answers that are accurate and straight forward..

Thank you..

mort439
Posts: 25
Joined: Wed Aug 07, 2013 1:17 am

Re: Refinace house but how?

Post by mort439 » Mon Oct 08, 2018 8:50 pm

Just FYI, I have no do it yourself skills for this stuff..haha.

bloom2708
Posts: 4907
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: Refinace house but how?

Post by bloom2708 » Mon Oct 08, 2018 8:54 pm

Downsize the project. Delay the project. Do only the bathroom. Save up more. Get different quotes. Many options. Another is stick with what you have for another year.
"We are not here to please, but to provoke thoughtfulness." --Unknown Boglehead

mort439
Posts: 25
Joined: Wed Aug 07, 2013 1:17 am

Re: Refinace house but how?

Post by mort439 » Mon Oct 08, 2018 8:55 pm

124,000 at 3.25% is just under1000.00 with escrow

40,000 at 6% is 282.00 a month, equity loan

Sorry should of included numbers..20 yr loans..

mort439
Posts: 25
Joined: Wed Aug 07, 2013 1:17 am

Re: Refinace house but how?

Post by mort439 » Mon Oct 08, 2018 8:59 pm

Looks like 4.883% , not an exact as I have not inquired directly. 20 year..

delamer
Posts: 6272
Joined: Tue Feb 08, 2011 6:13 pm

Re: Refinace house but how?

Post by delamer » Mon Oct 08, 2018 9:00 pm

mort439 wrote:
Mon Oct 08, 2018 8:55 pm
124,000 at 3.25% is just under1000.00 with escrow

40,000 at 6% is 282.00 a month, equity loan

Sorry should of included numbers..20 yr loans..
Do you have a quote for a $164,000 20 year loan at current rates?

mort439
Posts: 25
Joined: Wed Aug 07, 2013 1:17 am

Re: Refinace house but how?

Post by mort439 » Mon Oct 08, 2018 9:04 pm

No, I haven't got any other quotes currently. Floating the ideas around. I am thinking total refinace but it's not an easy decision. My wife is concerned about starting over..thanks

delamer
Posts: 6272
Joined: Tue Feb 08, 2011 6:13 pm

Re: Refinace house but how?

Post by delamer » Mon Oct 08, 2018 9:13 pm

mort439 wrote:
Mon Oct 08, 2018 9:04 pm
No, I haven't got any other quotes currently. Floating the ideas around. I am thinking total refinace but it's not an easy decision. My wife is concerned about starting over..thanks
Smart woman.

It seems a shame to give up the 3.25% rate, but it may make more sense than adding a 6% loan.

User avatar
Watty
Posts: 14372
Joined: Wed Oct 10, 2007 3:55 pm

Re: Refinace house but how?

Post by Watty » Mon Oct 08, 2018 9:41 pm

mort439 wrote:
Mon Oct 08, 2018 8:55 pm
124,000 at 3.25% is just under1000.00 with escrow

40,000 at 6% is 282.00 a month, equity loan

Sorry should of included numbers..20 yr loans..

.....
Looks like 4.883% , not an exact as I have not inquired directly. 20 year..
That rate is 1.63% higher. That means that the $124K part of the loan would cost over $2,000 a year more. (1.63%*$124,000= $2,025)

There would also likely be significant costs to refinance the loan.

There is no way that paying that much additional interest on your current loan would make sense to get a lower interest rate on a $40K loan. I would scratch the idea of doing a full refinance.
bloom2708 wrote:
Mon Oct 08, 2018 8:54 pm
Downsize the project. Delay the project. Do only the bathroom. Save up more. Get different quotes. Many options. Another is stick with what you have for another year.
+1

If you are not comfortable with getting a home equity loan (which does sound a bit scary) then you would need to change your plans.

I would add to the list;

1) Do a lot of work yourself. If you don't know how to do something then you can learn.

2) Split the projects into phases and do them as you can afford to pay cash for them.

3) Instead of fully finishing the basement you might semi-finish it. In about a third of my basement I painted the concrete floor with epoxy paint, put up some walls, put up an an acoustical tile ceiling, and hired someone to do the electric wiring for the lights and electric outlets. You can see how to do all these things on youtube and they are not that hard and since it is a semi finished basement it is not a big deal if something is not perfect. Even though it is not fully finished it works fine for a kids play area/rec room or for projects. Other than my labor this only cost a couple of thousand dollars. If someone wants to fully finish it someday the things I did will be easy to remove if they want to.

Nissanzx1
Posts: 304
Joined: Wed Jul 18, 2018 11:13 pm

Re: Refinace house but how?

Post by Nissanzx1 » Mon Oct 08, 2018 10:05 pm

1) what would the home sell for today (fair market)?

2) how much income in the household?

3) any other debts?

squirm
Posts: 1481
Joined: Sat Mar 19, 2011 11:53 am

Re: Refinace house but how?

Post by squirm » Mon Oct 08, 2018 10:17 pm

Personally I'd to a HELOC...refi into another 30 year loan? How many years to pay off the loans in totality? My parents kept refi'ing when it was in vogue as rates were falling. Their original mortgage was in 1970, mom is still paying a mortgage (Although good for her the home is worth millions). Don't get caught up in the monthly payments only look at the loan payments in total.

Get some more quotes, it sounds like this is very rough quote or do it in phases, maybe the basement first since that will add functionality.

gotester2000
Posts: 590
Joined: Sun Nov 12, 2017 1:59 am

Re: Refinace house but how?

Post by gotester2000 » Mon Oct 08, 2018 10:22 pm

Delay the work till you have enough money. By the time you have enough money you may find that the money may provide value for something more important.

mort439
Posts: 25
Joined: Wed Aug 07, 2013 1:17 am

Re: Refinace house but how?

Post by mort439 » Tue Oct 09, 2018 6:00 am

Thank you all for your replies. The house could sell for around 240,000 or so. Total yearly income is around 90,000. No significant debts. Do have credit debt of about 3000. Could we wait? Yes but with our kids getting older and the functionality of the house not being adequate we would like to update. For now I am looking at an equity loan. HELOC does not have fixed rates and that scares me a bit. 20 year equity loan is a rough pull to swallow as well...ughhh...thanks!

mort439
Posts: 25
Joined: Wed Aug 07, 2013 1:17 am

Re: Refinace house but how?

Post by mort439 » Tue Oct 09, 2018 6:00 am

Pill not pull..lol

quantAndHold
Posts: 1889
Joined: Thu Sep 17, 2015 10:39 pm

Re: Refinace house but how?

Post by quantAndHold » Tue Oct 09, 2018 6:40 am

I grew up in a house with an unfinished basement and only one bathroom, built in 1922, that had never been updated. I remember riding our tricycles around the furnace in the winter. I don’t think I was damaged by the experience.

Anyway, make a five year plan, and do the work over time as you have the money. Do some or all of it yourself. Home Depot, Lowes, etc, have DIY classes.

Nissanzx1
Posts: 304
Joined: Wed Jul 18, 2018 11:13 pm

Re: Refinace house but how?

Post by Nissanzx1 » Tue Oct 09, 2018 7:09 am

You could do a total refinance since you have the spread on your side. Rate will be higher but that's a choice you make if you want the basement done now.

I personally would not do a refinance until the credit card debt is gone and you have an emergency fund of $10-20K.

From the numbers, I'm getting the feeling there is possible disorganization and/or lack of focus around your budget.

NextMil
Posts: 502
Joined: Wed Dec 13, 2017 12:33 pm

Re: Refinace house but how?

Post by NextMil » Tue Oct 09, 2018 7:10 am

Yes, wait. Save up cash and do it bit by bit. I would make a list of highest importance to least important and get quotes for all the jobs, and tick through the most important.

I also grew up in a small house with one bathroom and an unfinished basement that we didn't get to use. While it wasn't ideal, we made it work.

sjt
Posts: 117
Joined: Fri May 26, 2017 3:03 pm

Re: Refinace house but how?

Post by sjt » Tue Oct 09, 2018 7:51 am

If you have any interest in learning to DIY, this would be a good opportunity. Home Depot offers some free DIY classes, and there are books and youtubes available for others. Could you DIY some things while saving for major changes?

You mention that you have children which makes this more important. Making the time and effort to learn something new and difficult to improve your home for your family is an important life lesson. Kids can help with painting etc which is quality time spent and teaches them something new and builds confidence.

Good luck!
"The one who covets is the poorer man, | For he would have that which he never can; | But he who doesn't have and doesn't crave | Is rich, though you may hold him but a knave." - Wife of Bath tale

User avatar
djpeteski
Posts: 665
Joined: Fri Mar 31, 2017 9:07 am

Re: Refinace house but how?

Post by djpeteski » Tue Oct 09, 2018 8:00 am

mort439 wrote:
Mon Oct 08, 2018 8:43 pm
...and I would have to do the longest term of the loan to afford it.
This indicates that you cannot afford the remodel. Sorry for the bad news.

User avatar
lthenderson
Posts: 3518
Joined: Tue Feb 21, 2012 12:43 pm
Location: Iowa

Re: Refinace house but how?

Post by lthenderson » Tue Oct 09, 2018 8:05 am

mort439 wrote:
Tue Oct 09, 2018 6:00 am
but with our kids getting older and the functionality of the house not being adequate we would like to update.
What functionality are you looking to add with this remodel? I can't imagine what functionality would be NEEDED for raising three kids. From what you stated above, it sounds like the house is making you its slave and you are going to spend the rest of your career paying it back. It isn't worth it. You need to re-evaluate between your needs and wants.

Jack FFR1846
Posts: 7970
Joined: Tue Dec 31, 2013 7:05 am

Re: Refinace house but how?

Post by Jack FFR1846 » Tue Oct 09, 2018 8:07 am

Small chunks.

Decide what you need first. Basement refinish or bathroom. Look at steps that need to be done and leave anything you want to tackle as homeowner task with your contractor. Off the top of my head, paint. I would think you and/or your wife could paint. This saves more than you'd think.

I also agree that you may want to wait. The fact that you have credit card debt tells me that you can't afford this anyways. Perhaps this is a project that you should save up for. Yes, you'd like an updated bathroom and refinished basement, but in my opinion, you simply can't afford it. Sorry.

So my final answer is to skip all of this expensive work and live with what you have.
Bogle: Smart Beta is stupid

mort439
Posts: 25
Joined: Wed Aug 07, 2013 1:17 am

Re: Refinace house but how?

Post by mort439 » Wed Oct 10, 2018 1:35 pm

As a financial website I do understand what everyone is saying in regards to not doing it. I do have an emergency fund but do have some credit debt. Not a huge amount though from comparing to others I know. I guess my question would be even if I had no credit debt except my mortgage would the answer still be no? I expect to live here beyond my kids leaving for college etc. So I am considering the equity loan. Can we get by without it. Yea, I guess but living with a finished and unfinished house it can be difficult. Especially if I want to sell down the road after my kids and we want to downsize. I will be receiving a defined pension in less than 2 years but anticipate to continue working beyond that so I will have extra income. It's a tough call lol

delamer
Posts: 6272
Joined: Tue Feb 08, 2011 6:13 pm

Re: Refinace house but how?

Post by delamer » Wed Oct 10, 2018 2:08 pm

mort439 wrote:
Wed Oct 10, 2018 1:35 pm
As a financial website I do understand what everyone is saying in regards to not doing it. I do have an emergency fund but do have some credit debt. Not a huge amount though from comparing to others I know. I guess my question would be even if I had no credit debt except my mortgage would the answer still be no? I expect to live here beyond my kids leaving for college etc. So I am considering the equity loan. Can we get by without it. Yea, I guess but living with a finished and unfinished house it can be difficult. Especially if I want to sell down the road after my kids and we want to downsize. I will be receiving a defined pension in less than 2 years but anticipate to continue working beyond that so I will have extra income. It's a tough call lol
Having the credit card debt implies that you are living beyond your means already and that your budget is very tight.

Whether that debt is less than what other people you know have isn’t the issue. You still need to pay it back.

Adding another $40,000 of debt on top of that is a problem. Have you drawn up a budget showing how you’ll afford the monthly payment on a home equity loan?

And don’t forget that you are a one income family. Even if your job is secure, what would happen if you were in an accident and couldn’t work for a couple months?

bloom2708
Posts: 4907
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: Refinace house but how?

Post by bloom2708 » Wed Oct 10, 2018 2:30 pm

mort439 wrote:
Wed Oct 10, 2018 1:35 pm
As a financial website I do understand what everyone is saying in regards to not doing it. I do have an emergency fund but do have some credit debt. Not a huge amount though from comparing to others I know. I guess my question would be even if I had no credit debt except my mortgage would the answer still be no? I expect to live here beyond my kids leaving for college etc. So I am considering the equity loan. Can we get by without it. Yea, I guess but living with a finished and unfinished house it can be difficult. Especially if I want to sell down the road after my kids and we want to downsize. I will be receiving a defined pension in less than 2 years but anticipate to continue working beyond that so I will have extra income. It's a tough call lol
More debt at a higher interest rate is more risk. Based on the pension comments you must be nearing retirement age. We just try to use our experience and give you things to think about. $40k at 6% is not a trivial sum. Paying it back over a long time means that a chunk of your income is tied up, you are paying interest for that same long time.

If everyone said "go for it, why not borrow an extra $10k for a vacation to celebrate.." this place would be no fun at all. Debt can be a tool, but it can also get you in some real tough scenarios.

You can read all the advice/thoughts and still borrow. No offense will be taken. :o
"We are not here to please, but to provoke thoughtfulness." --Unknown Boglehead

User avatar
Elsebet
Posts: 588
Joined: Mon Feb 08, 2016 2:28 pm
Location: Washington state

Re: Refinace house but how?

Post by Elsebet » Wed Oct 10, 2018 3:59 pm

I didn't see it asked, you said the house was worth 240k, how much do you currently owe on it? I'm just curious what the difference is between your liability on the house vs. your equity. The other question is, is your home in a high or low COL (cost of living) area? Do prices/values go up/down a lot every year or is it more steady? Also, are you maxing your retirement accounts?

If you have a large amount of equity and a small mortgage, taking a HELOC and doing the project over a few years may be worthwhile. You could do a bathroom one year using the HELOC, pay it off, then do the basement next year, rinse and repeat. That's kind of what I am doing with my property, we do one large project every few years and pay the HELOC off before starting another. However I bought a fixer-upper home cheap in a high COL area and even the most conservative valuation is much more than my mortgage, so there is a bit less risk for me putting money into my house. This is why I am asking about the value of the home compared to what you owe and the general housing market trends in your area.

I'd still clean up that credit card debt and any other non-mortgage debt you have before getting a HELOC.

mort439
Posts: 25
Joined: Wed Aug 07, 2013 1:17 am

Re: Refinace house but how?

Post by mort439 » Wed Oct 10, 2018 9:29 pm

The house is worth 240,000 and I currently have a mortage for 124000. We live in a low cost of living area. Rural town with moderately low taxes. My only issue with a HELOC is they usually have a variable rate not a fixed one. I don't like the idea of monthly payments changing from time to time. Thank you..

mort439
Posts: 25
Joined: Wed Aug 07, 2013 1:17 am

Re: Refinace house but how?

Post by mort439 » Wed Oct 10, 2018 9:34 pm

Sorry, currently have multiple retirement accounts. Vanguard, also have a 403b from my employment. Both accounts are not maxed and I have only been putting in a moderate amount. I am retiring from a hazardous duty job so I will be 48 when I can retire from that job. I intend of of course to continue working in a different job.

Post Reply