Cash-Out Refinance vs. Tranditional Home Equitly Loan

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jemscreen392
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Cash-Out Refinance vs. Tranditional Home Equitly Loan

Post by jemscreen392 » Fri Jan 19, 2018 4:18 pm

Look for some advice. We have about $45,000 of home repairs that need to be done. What are your thoughts on dealing with the $45,000? The options that I can think of are:

1) Pay by pulling money from our investment accounts. Of course, this means losing interest on that $45,000 and it's about 1/4 of our total investment amount.
2) Apply for a credit card with 0% APR for 12 months, then put the $45,000 on there and then pull money from vanguard monthly to pay off. This keeps more money in investments accounts over time. But, the company doing repairs charges 2% if you use a credit card, so there is some added "interest."

The next two options I know little about and have no experience with:
3) Cash out refinancing
4) Traditional Home equity loan

Current mortgage balance is about $313,000 at 3.99%
Current home value is between $475,000 and $520,000 depending on what website you look at.

I'd appreciate any thoughts on those options. Thanks.

delamer
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Re: Cash-Out Refinance vs. Tranditional Home Equitly Loan

Post by delamer » Fri Jan 19, 2018 6:13 pm

When you say investment accounts, are you talking about taxable accounts or do you mean tax-advantaged retirement accounts? If taxable, are those funds earmarked for a specifuc purpose?

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fortfun
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Re: Cash-Out Refinance vs. Tranditional Home Equitly Loan

Post by fortfun » Fri Jan 19, 2018 6:31 pm

Are the repairs really necessary? I'd like to remodel my kitchen but can't justify the cost. Yes, it would be nice to have granite or quartz but Formica will have to do, for now.

If the repairs are necessary, look into the cash out refi. Only do it if you can get a similar (or better rate) AND NO closing costs. Provident Funding has great rates and no closing costs. Also, you might check out Ally. I've been getting offers from them that they will beat any other offer. Again, only consider this if:
1. The repairs are really necessary (i.e. new roof).
2. You get a similar or better interest rate.
3. There are no closing costs/hidden fees.

jemscreen392
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Re: Cash-Out Refinance vs. Tranditional Home Equitly Loan

Post by jemscreen392 » Fri Jan 19, 2018 6:49 pm

delamer - Yes - taxable accounts. I'd rather not touch my 403b. The funds are not earmarked for anything particular. If it's the most cost effective option, we can pull all $45k from vanguard. I'm just not sure if losing that interest is the best move vs. other options.

fortfun - Yes. The repairs are absolutely necessary. As mentioned above, our current mortgage is at 3.99%. Not sure we can find that again, but maybe low fours.

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fortfun
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Re: Cash-Out Refinance vs. Tranditional Home Equitly Loan

Post by fortfun » Fri Jan 19, 2018 6:52 pm

jemscreen392 wrote:
Fri Jan 19, 2018 6:49 pm
delamer - Yes - taxable accounts. I'd rather not touch my 403b. The funds are not earmarked for anything particular. If it's the most cost effective option, we can pull all $45k from vanguard. I'm just not sure if losing that interest is the best move vs. other options.

fortfun - Yes. The repairs are absolutely necessary. As mentioned above, our current mortgage is at 3.99%. Not sure we can find that again, but maybe low fours.
Check Provident and Ally. You may be surprised. Your local brick and mortar companies charge way more than online companies.

delamer
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Re: Cash-Out Refinance vs. Tranditional Home Equitly Loan

Post by delamer » Fri Jan 19, 2018 6:54 pm

There is a degree of hassle with a new mortgage or HEL that would push me toward using the savings instead.

I cerainly would not use the cash-out if it involved a higher interest rate than my current loan.

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fortfun
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Re: Cash-Out Refinance vs. Tranditional Home Equitly Loan

Post by fortfun » Fri Jan 19, 2018 7:17 pm

delamer wrote:
Fri Jan 19, 2018 6:54 pm
There is a degree of hassle with a new mortgage or HEL that would push me toward using the savings instead.

I cerainly would not use the cash-out if it involved a higher interest rate than my current loan.
45k is a lot of money. Probably worth a little hassle. If this savings is part of your emergency fund, I wouldn't risk it. It's at least worth a call to Provident, Ally, etc. You might be surprised. My last cash out lowered my rate by .25% and didn't charge any closing costs. If your current mortgage is thru a brick and mortar, you'll likely get better rates with an online lender.

delamer
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Re: Cash-Out Refinance vs. Tranditional Home Equitly Loan

Post by delamer » Fri Jan 19, 2018 7:30 pm

fortfun wrote:
Fri Jan 19, 2018 7:17 pm
delamer wrote:
Fri Jan 19, 2018 6:54 pm
There is a degree of hassle with a new mortgage or HEL that would push me toward using the savings instead.

I cerainly would not use the cash-out if it involved a higher interest rate than my current loan.
45k is a lot of money. Probably worth a little hassle. If this savings is part of your emergency fund, I wouldn't risk it. It's at least worth a call to Provident, Ally, etc. You might be surprised. My last cash out lowered my rate by .25% and didn't charge any closing costs. If your current mortgage is thru a brick and mortar, you'll likely get better rates with an online lender.
The $45K is 1/4 of their investments, so that is a really big emergency fund.

If it makes sense to refi for other reasons then that is a decent option. It partly depends on how far into the current mortgage they are. Why refi into another 30 year if you are 5 years into the current one, for instance?

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fortfun
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Re: Cash-Out Refinance vs. Tranditional Home Equitly Loan

Post by fortfun » Fri Jan 19, 2018 7:37 pm

delamer wrote:
Fri Jan 19, 2018 7:30 pm
fortfun wrote:
Fri Jan 19, 2018 7:17 pm
delamer wrote:
Fri Jan 19, 2018 6:54 pm
There is a degree of hassle with a new mortgage or HEL that would push me toward using the savings instead.

I cerainly would not use the cash-out if it involved a higher interest rate than my current loan.
45k is a lot of money. Probably worth a little hassle. If this savings is part of your emergency fund, I wouldn't risk it. It's at least worth a call to Provident, Ally, etc. You might be surprised. My last cash out lowered my rate by .25% and didn't charge any closing costs. If your current mortgage is thru a brick and mortar, you'll likely get better rates with an online lender.
The $45K is 1/4 of their investments, so that is a really big emergency fund.

If it makes sense to refi for other reasons then that is a decent option. It partly depends on how far into the current mortgage they are. Why refi into another 30 year if you are 5 years into the current one, for instance?
True delamer! I only refi if I drop .25, no fees, and then I continue to pay at the same rate that I would have paid off originally. That was the case with my last online lender (provident funding).

jemscreen392
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Re: Cash-Out Refinance vs. Tranditional Home Equitly Loan

Post by jemscreen392 » Fri Jan 19, 2018 7:47 pm

We are only 3 years into a 30-year fixed.

The ~200k invested in index funds is emergency/future funds/kid's college/etc. Basically we pretend like it's not there. So taking out 45K from that would be doable. I just don't know if another option would be better of since I'm losing out 45k worth in interest returns.

Quick glance it looks like we'd be looking at around 4.15% on a refinance. so maybe that's out.

Home equity loans look like a bad choice also, given the new tax code and the not-so-great interest rate.

So that leaves just taking out the whole 45k or maybe doing a no interest credit card and putting the charge on that and slowly paying off using the vangaurd funds.

cherijoh
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Re: Cash-Out Refinance vs. Tranditional Home Equitly Loan

Post by cherijoh » Fri Jan 19, 2018 8:05 pm

jemscreen392 wrote:
Fri Jan 19, 2018 7:47 pm
We are only 3 years into a 30-year fixed.

The ~200k invested in index funds is emergency/future funds/kid's college/etc. Basically we pretend like it's not there. So taking out 45K from that would be doable. I just don't know if another option would be better of since I'm losing out 45k worth in interest returns.

Quick glance it looks like we'd be looking at around 4.15% on a refinance. so maybe that's out.

Home equity loans look like a bad choice also, given the new tax code and the not-so-great interest rate.

So that leaves just taking out the whole 45k or maybe doing a no interest credit card and putting the charge on that and slowly paying off using the vangaurd funds.
You might want to double check on the new tax code. It can be a little confusing. Acquisition debt is still deductible but home equity debt is not. However, using a HELOC doesn't automatically make it Home equity debt. If you are using the money on repairing or upgrading your home, I think it still counts as acquisition debt. On the other hand, cash-out mortgage refinances and HELOCs that are used for debt consolidation, buying a new car or paying for your kid's education, etc. is Home Equity debt. So don't confuse the debt classification with the financial product. However, I am not a CPA, so you should verify this with a tax professional or read the IRS publication with a fine-tooth comb to satisfy yourself.

scifilover
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Re: Cash-Out Refinance vs. Tranditional Home Equitly Loan

Post by scifilover » Sat Jan 20, 2018 9:48 am

https://blog.turbotax.intuit.com/tax-de ... loc-23804/

Per the above, HELOC for repairs or renovations is still deductible.

One more thing to consider about using funds from your taxable account is how they are presently invested. If just in cash, you probably aren't making much on them. If invested in other than cash, will there be tax effects from liquidating shares?

How long do you want to repay these funds? Or rather, how quickly could you repay? The HELOC generally is going to limit payback to a max of 15 years. Doing a refi can stretch payments out to the length of the 1st mortgage.

Another factor is that generally HELOCs are floating rate loans tied to some interest rate index. With the FED planning several more rate increases this year there is sure to be an impact on HELOC loans.

I don't like floating rate loans. Just my experience dating back to 1980 when the Prime rate hit 21%.

MoonOrb
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Re: Cash-Out Refinance vs. Tranditional Home Equitly Loan

Post by MoonOrb » Sat Jan 20, 2018 10:00 am

When we were in a similar situation we used a portion of our taxable investing account. I considered this sort of thing a legitimate use of that account—the account was for emergencies, large and unexpected expenses, and retirement, in that order. I hate the idea of the credit card as a way of trying to earn some extra appreciation on the taxable account—way too risky in my view.

Cash out refi is okay; this is sort of six and one half dozen the other; I’d be pushed to that option if I could do it without closing costs and keep or better my current rate. But I would not be anxious to pay closing costs or a higher interest rate if I could easily cover this with my taxable account.

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