Which one to do first, a Refinance or Remodel?

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Chowder
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Which one to do first, a Refinance or Remodel?

Post by Chowder » Wed Oct 05, 2016 12:47 am

I currently have enough available cash to either do a refinance (I currently have 3 years left on my ARM before it goes to an adjustable rate mortgage) or I can do whole house remodel payed for with cash, no loans needed.

I've been googling like crazy trying to find any opinions why one might be better than the other. But since my situation is that I don't need to take any loans out to do the remodel, I'm having difficulty finding any information that would be helpful.

Yes, I need to refinance out of my ARM, but the value added to my house after the remodel is finished also seems equally as positive? Also, by the time my ARM loan finishes I will have saved enough for a refinance again. The only tricky thing I see is that interest rates now are so low, I don't know if missing out on that will be more of a negative than the added value I would be adding to my home.

Any insight into my situation would be much appreciated. Thanks

harikaried
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Re: Which one to do first, a Refinance or Remodel?

Post by harikaried » Wed Oct 05, 2016 12:55 am

Chowder wrote:I currently have enough available cash to either do a refinance
What cash do you need for a refinance?
Chowder wrote:the value added to my house after the remodel is finished also seems equally as positive
What positive do you see from remodeling in regards to a subsequent refinance?

Topic Author
Chowder
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Re: Which one to do first, a Refinance or Remodel?

Post by Chowder » Wed Oct 05, 2016 1:04 am

harikaried wrote:
Chowder wrote:I currently have enough available cash to either do a refinance
What cash do you need for a refinance?
The main purpose of my refinance is to remove myself from the ARM to a standard 30 year and keep my monthly payments the same. The cash I have now to pay off more of the mortgage and with current interest rates being low, I'm able to accomplish both. I decide to remodel first and re-save that money and refinance 3 years from now the interest rates could be a lot higher, the same, who knows. That aspect of it concerns me which makes me think I should possibly refinance first to take advantage of the current low rates possibly.
Chowder wrote:the value added to my house after the remodel is finished also seems equally as positive
What positive do you see from remodeling in regards to a subsequent refinance?[/quote]
Remodeling my home now seems like it would add a lot more equity once it gets appraised during the refinance in 3 years if I would go that route.

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celia
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Re: Which one to do first, a Refinance or Remodel?

Post by celia » Wed Oct 05, 2016 1:18 am

Chowder wrote:Remodeling my home now seems like it would add a lot more equity once it gets appraised during the refinance in 3 years if I would go that route.
I certainly wouldn't remodel at all if getting a better appraisal was my main reason for remodeling.

I would go with the sure thing--refinance at today's low rates. It is also possible you could lose your job in two years and then be left with no/low income PLUS a higher mortgage payment. (I should know as it almost happened to us. Luckily we closed on the refinance before the paychecks stopped.)
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.

basspond
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Re: Which one to do first, a Refinance or Remodel?

Post by basspond » Wed Oct 05, 2016 4:39 am

Refinance because you are eliminating a huge risk. Also by delaying the remodel you are foregoing instant gratification which is a huge stumbling block in wealth accumulation.

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gasman
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Re: Which one to do first, a Refinance or Remodel?

Post by gasman » Wed Oct 05, 2016 5:33 am

Both at the same time. Refinance and set up a home equity line of credit as part of the same process that you tap to remodel.

WannabeEarlyRetiree
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Re: Which one to do first, a Refinance or Remodel?

Post by WannabeEarlyRetiree » Wed Oct 05, 2016 8:29 am

Why not look into no cost refi then you can do both refi and remodel

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hand
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Re: Which one to do first, a Refinance or Remodel?

Post by hand » Wed Oct 05, 2016 8:37 am

Renovating will always be an option if you have the cash, but there is no promise that a refinance at today's rates (or at any rates) will be available in the future. Refinance first.

If you do refinance, then remodel, if rates have dropped further, you can always refinance again!

Danzangdc
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Re: Which one to do first, a Refinance or Remodel?

Post by Danzangdc » Wed Oct 05, 2016 9:19 am

Your 30-year fixed interest rate is going to be much worse than your ARM rate. You will be paying much more in interest, even though your monthly payments may be the same, after you pour a bunch of money into the mortgage. Why would you do this to yourself three years before you need to? Because rates may go up? Okay, but I still wouldn't trade a guaranteed lower rate for the next three years for the possibility of a slightly higher rate in three years.

The renovation has nothing to do with the refinance. If you are going to renovate at some point, might as well do it now so that you can enjoy it longer.

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Chowder
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Re: Which one to do first, a Refinance or Remodel?

Post by Chowder » Wed Oct 05, 2016 4:55 pm

Thank you everyone for your insight.

I think I was getting caught up between building equity as a means to building wealth as the boglehead way. But it seems that locking in a low interest rate will be a better plan in the long run

NOVACPA
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Re: Which one to do first, a Refinance or Remodel?

Post by NOVACPA » Wed Oct 05, 2016 6:16 pm

An anecdote:

In the last two years, I did a remodel, a refinance, and took out a HELOC on my condo.

I had a 30 year at 4.625% (LPMI drove the rate higher) that was taken out in 2012. I had about 3% equity when I bought. I refinanced to a 5/5 ARM at 2.875% and paid all cost out of pocket. PMI was about $100 a month.

Then I did the remodel while concurrently taking out the HELOC. I timed it so the HELOC appraisal would happen once the remodel was done. The appraisal took the LTV from about 95% to 78%. PMI was dropped.

Therefore, my recommendation is to try to pay for the remodel out of pocket (0% balance transfer is a possibility) then do the refinance if PMI is in the picture at all.

What's the desire for the 30 year? How long do you plan to stay there. People scream 30/15 year only, but you need to run your own numbers. I'm 28 and don't plan on being here for 10 years, so the lower rate is much more beneficial to me than "locking in" a rate for 30 years.

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