[OkieSnuffBox]

We'd like to do some upgrades, and a few repairs, to the house and with interest rates super low (for now since the Feds have stated they are going to start raising them soon), a 2nd mortgage, or HELOC or possibly another option I don't know of seems like it could be a good idea.

My mortgage broker doesn't do them, but gave me an idea of how they work and a few of the options, but he doesn't do them. He referred me to some one he's worked with for years. I trust my broker, he got me the original loan on my house in 2017, and helped me with my refi in the summer of 2020.

What things I need to make sure I ask his referral about options? Fees? Potential downfalls?

Those of you that have done it, would you do it again? What was your experience like? etc.



I'm looking at something in the $10-15k range. So it would easily be paid back in the next 18 months, even if I don't use the 4 bonuses I have coming up over the next 18 months. So this isn't a matter of stretching finances for something we can't afford, but more using the low interest rates to get everything done at once.

[Alfisti]

I am not sure it is worth getting a HELOC for 15K. Not sure what you expect to do around the house for 15K tbh, shit adds up FAST. For something that small I would just look into a personal loan.

FWIW our HELOC is revolving, using random numbers, the bank says OK the house is worth $1M, your mortgage is 350K, we will lend you another $300K and as you pay the mortgage down your LOC can increase so you always have the ability to borrow $650K. AGain these are random figures to give you an idea.

The advantage here is interest rates are low on the LOC, usually prime +1% here. There's also no penalty for paying down the LOC portion in big clumps and it also means you can consolidate all debt into this product at super low rates, including car loans etc.

[zx10guy]

I have a HELOC and kept it in place when I refinanced recently. I did mine through PNC a few years ago. I got a good program where I think my rate is .74% below prime where my current interest rate is 2.49%. It's adjustable so with the next Fed rate increase, that'll change that number. There is a 10 year draw period after which it converts over to a fixed mortgage where you can't draw from it anymore. I don't recall what the rate will convert over as because I never intended to keep a balance out that long. There is also an option for me to convert any part of the balance above $5k into a fixed rate while still maintaining the rest of the credit line available. There is no prepayment penalty.

One of the advantages of using a HELOC for home improvements is that the interest rate can be tax deductible.

I also kept mine in place to have another source of funds in an emergency.

[OkieSnuffBox]

Originally Posted by Alfisti

I am not sure it is worth getting a HELOC for 15K. Not sure what you expect to do around the house for 15K tbh, shit adds up FAST. For something that small I would just look into a personal loan.

FWIW our HELOC is revolving, using random numbers, the bank says OK the house is worth $1M, your mortgage is 350K, we will lend you another $300K and as you pay the mortgage down your LOC can increase so you always have the ability to borrow $650K. AGain these are random figures to give you an idea.

The advantage here is interest rates are low on the LOC, usually prime +1% here. There's also no penalty for paying down the LOC portion in big clumps and it also means you can consolidate all debt into this product at super low rates, including car loans etc.

OKC doesn't have an insane market like you have north of the border. I purchased my house 4 years ago and it was already completely remodeled. Granite in kitchen, both baths and the bar, new roof, all new utilities (HVAC and water heater).

The main reason is basically every type of borrowed money that isn't a credit card has a lower rate than the current rate of inflation (and the Feds are about to start raising rates).

It's mainly a few things I'd like to have done before the spring (have a few LARGE trees removed that are barely hanging on after two rough ice storms in the last 15 months and the landscaping to fix the massive patches of dirt that result for a few years if you don't), the chimney needs some substantial repairs to be safe to use again, and a few little extras since we plan on staying here for the next 4-5 years.

We had started looking at larger homes last year since we are both permanent remote workers, but housing prices have become so insane........I enjoy our mortgage only being about 1/8th of our take home pay.

[Alfisti]

Oh 100pc, my numbers were just to keep it easy to read, same principle applies though as to how it works in a revolving way.

[Our03z4]

Originally Posted by OkieSnuffBox

OKC doesn't have an insane market like you have north of the border. I purchased my house 4 years ago and it was already completely remodeled. Granite in kitchen, both baths and the bar, new roof, all new utilities (HVAC and water heater).

The main reason is basically every type of borrowed money that isn't a credit card has a lower rate than the current rate of inflation (and the Feds are about to start raising rates).

It's mainly a few things I'd like to have done before the spring (have a few LARGE trees removed that are barely hanging on after two rough ice storms in the last 15 months and the landscaping to fix the massive patches of dirt that result for a few years if you don't), the chimney needs some substantial repairs to be safe to use again, and a few little extras since we plan on staying here for the next 4-5 years.

We had started looking at larger homes last year since we are both permanent remote workers, but housing prices have become so insane........I enjoy our mortgage only being about 1/8th of our take home pay.

Have you gotten quotes yet? I think you are underestimating the costs of those projects. Depending on how large those trees are you'll zap a lot of your budget. If they need a crane your budget is gone already. Chimney work is also pretty expensive. Depends on if it's masonry or just a liner.

[zx10guy]

Something else I forgot to mention. Depending on the bank, you may be charged closing costs. And the bank may require an appraisal which may or may not be a cost you would incur.

There's no harm in getting a HELOC credit line larger than what you would use. Mine is at $75k and I haven't even tapped 3/4 of it at any given time. As long as with the credit line you're requesting there is enough equity left over that doesn't cause an issue with the loan to value ratios.

[Alfisti]

Originally Posted by Our03z4

Have you gotten quotes yet? I think you are underestimating the costs of those projects. Depending on how large those trees are you'll zap a lot of your budget. If they need a crane your budget is gone already. Chimney work is also pretty expensive. Depends on if it's masonry or just a liner.

THat was my reaction but maybe the OKC market is more reasonable? To remove a tree here, medium sized maple, it is $2K. I suspect OK may be less ridiculous.

[ZL9M2]

Just compare rates/closing costs/annual fees/appraisal fees/payoff requirements - across several HELOC providers. As was mentioned above, set up the HELOC at an amount that is more than you ever think you will need. You can generally go up to approx 80% of the equity you have in your home. If you are laid off, become self employed, retire, quit your job and your income tanks you will not be able generally to set up a line of credit. Do it now while your financials and income are good. It may only cost $40 - $50 per year to maintain the line of credit even once you've paid off these initial expenses.

[Alfisti]

Yeah I concur, as much as possible. Bank offered us $800K so we took it, we don't use it, just leave it there but i never have to go cap in hand again to the bank, it's a one time deal.

[OkieSnuffBox]

Thanks everyone so far for the input, it's greatly appreciated!

Originally Posted by Our03z4

Have you gotten quotes yet? I think you are underestimating the costs of those projects. Depending on how large those trees are you'll zap a lot of your budget. If they need a crane your budget is gone already. Chimney work is also pretty expensive. Depends on if it's masonry or just a liner.

Quote on the chimney was a couple of years ago at $1800, before installing a new valve and gas logs. I'm sure it's a little more now, but I wouldn't expect it to be double or anything like that.

Originally Posted by Alfisti

THat was my reaction but maybe the OKC market is more reasonable? To remove a tree here, medium sized maple, it is $2K. I suspect OK may be less ridiculous.

I've already had 5 different trees removed from the property in the 4 years I've lived here. Really only one has to go, but I'm considering the removing a 2nd as well. The tree guys around here don't start using man baskets and such until you get 35+ feet tall. Or if you're using one of the severely overpriced companies that advertises on the radio/TV.

They just start taking down limbs and climbing up as they go.

Also, since I'll be doing some landscaping to fix the one tree (maybe two) being removed, I'd like to spruce up the rest of it as well. We have a boomerang shaped house on a corner and thus a ton of flower beds and space to make a really great front yard and add in some under eave lighting to get more light on the property for looks and to drive a way ne'er-do-wells.

[Joekerr]

Originally Posted by Alfisti

THat was my reaction but maybe the OKC market is more reasonable? To remove a tree here, medium sized maple, it is $2K. I suspect OK may be less ridiculous.

That's nuts. And its a maple too, which means the wood is desirable. To give you an idea (now some of my trees were relatively small, like probably 10 inches or so diameter), I had 10 trees removed and it cost me $2,800. And that was for them to take it all away, it was junk wood. Now, it was a deal because I know them, probably would have been close to double the price if I didn't know them but still...that seems high.

[Hivand_M]

I do home loans in LA. A lot of mortgage companies have a $25k minimum on HELOCs. Your market might be different. HELOCs are not fixed rate loans and usually have a 2% cap interest rate increase a year so when feds start raising rates your loan will be affected. Also, your payments are not fully amortized so when your bill comes you pay interest only, unless you pay extra yourself. For such a small loan, try looking into a personal loan from a credit union, you'll likely get it at no cost and I believe it's around the same interest rate as HELOCs.

[chassis]

We had a HELOC years ago. They are benign and easy. We had one at our credit union. These are not exotic instruments. Should be a half dozen institutions that can help you in your city or the nearest mid to large metro area.

If you need the cash you need the cash. And if you are confident you will not have difficulty paying it off, and you don’t mind renting someone else’s money, go for it.

[BRAKE!]

I would always advise against using your home as collateral for more loans outside of your primary mortgage. The more you borrow, the more expensive your payments become. How much longer do you want to keep overpaying (in interest) for the things you want/but not need? Plus, there is always risk involved with not being able to pay back your loans; life happens, medical expenses can pile up, one can lose a job etc. it’s at those moments where the last thing you need is someone’s hand in the sanctity of your home.

“This isn’t a matter of stretching finances for something we can’t afford” - by definition, if you have to borrow money to get it done, you’re stretching your finances.

Ask yourself, why can’t this wait 18 months when you actually have the money to do this (in your budget) and you don’t have to pay a cent in interest?

[OkieSnuffBox]

Originally Posted by BRAKE!

Ask yourself, why can’t this wait 18 months when you actually have the money to do this (in your budget) and you don’t have to pay a cent in interest?

Because the current rate on HELOCs is lower than the current rise of inflation. If I save for 18 months the money saved loses purchasing power as the cost of goods and labor go up.

Last month the rolling 12 month average was north of 7% inflation, IIRC. Which means it was really even higher than that.

[dogbone]

If you have equity in your house and you are generally responsible with money, I always recommend getting a HELOC.

Why?
-The best time to get credit is when you don't need it. The worst time to ask for money is when you need it. If you go to a bank asking for a loan after you get laid off or had some terrible financial thing happen in your life, good luck. At best, they will rake you over the coals with a terrible deal. At worst, they will deny your request.
-The interest rate from a good HELOC if you have solid credit is virtually untouchable by basically any other form of credit.

Some thoughts/notes:

-A HELOC's maximum amount is often calculated as 80% total loan to value. What does that mean? Let's look at an example. For easy numbers, let's say the home is worth $1million. And as you are applying for the HELOC, let's say you owe $600k on it. Then, a bank will generally allow you to take a $200k HELOC, meaning now you will owe a total of $800k on the $1million house.

-HELOC means home equity LINE OF CREDIT. Looking at my previous example, once you do the deal, they don't drop $200k into your bank account. They give you a checkbook and a debit card and you now have $200k of spending power. This is why I said you need to be responsible with money, because a lot of people think they can go on a $200k spending spree once they get the HELOC. That is very dangerous. Don't go buy a boat! So, you need to have good spending habits.

-Remember---once the HELOC is opened, the balance is zero. If you don't use it, then it stays at zero, meaning it's not really costing you anything for it to be in place and available at any time. Some HELOCs have an annual fee of like $150 or something. Fine. But, in my opinion, this is a small price to pay to have access to potentially large sums of money instantly if you need it.

-What's nice about a line of credit is that you can borrow from it, pay it back, and then have access to the money again. When you pay a regular loan back, you don't have access to that money again.

-Many HELOCs work in such a way that they have a 10 year draw period. So, you have 10 years to access the line of credit. You can also pay back all the money that has been borrowed within that 10 years if you want. In that first 10 years, many HELOCs are setup so you only have make interest payments during that time. You can pay principle if you want, but it may not be required. Then, after 10 years, whatever amount of money that has been borrowed locks down into a 20 year loan with regular principle and interest payments. If, after 10 years, the balance is zero, then the HELOC just shuts down, and then you can go open another one if you want.

-I have a HELOC right now that is Prime MINUS 0.25% for amounts borrowed under $50k, and Prime MINUS 1% for amounts over $50k. That's 2.25%! The bank I got this HELOC with is called Third Federal. If you have good credit, you should be able to get a decent interest rate. Don't just settle on something that is 7% because you can do a quick online application. In my opinion, it's worth the effort of going through the process to get something with a low rate. This will mean an official appraisal and they'll look into your finances/credit.

-In the past, I've had HELOCs with the bank that I do all my banking with. That is very convenient because you can just do simple online transfers between accounts, and the funds are ready to use very quickly. These days, my bank refuses to do HELOCs, so I was forced to look elsewhere. That's fine because I got a great rate, but it is less convenient to have to take a paper check down to the bank to actually deposit it. And just know that with a paper check, sometimes there is a multi-day waiting period before that check will clear and be usable. So, if you're using paper checks to borrow from the HELOC, give yourself a few days. I even suggest doing a test deposit to see how long it takes because no one can tell you how long it will take. You just gotta try it. Sometimes it can be just a couple days. But one time, years ago, I walked into my bank, and deposited a large HELOC check. The HELOC was with a different bank (Chase). There was a Chase branch one block away from my bank. The teller said it would take 10 business days for the check to clear because it "came from an out of state bank." Really? I can see the sign of the "out of state" bank out your window! Whatever.....

-There are clauses in the HELOC contract that may surprise you because seriously, who reads every word of a HELOC contract? I had a HELOC with Chase during the housing crash of 2007. The HELOC balance was zero at the time, but all the banks were freaking the hell out. One day, a letter arrives from Chase saying, "Based on this clause on this page in this paragraph on this line of your contract, we are allowed to reduce your line of credit if we deem it necessary, so we are reducing the amount of your HELOC by $$$$." sigh....whatever. So, just know that things can get fluid if the world goes crazy.

Anyway, all this to say, in my opinion, a HELOC is a legitimate tool for a responsible home owner. The interest rate on the borrowed money is simply very hard to beat.

[BRAKE!]

Originally Posted by OkieSnuffBox

Because the current rate on HELOCs is lower than the current rise of inflation. If I save for 18 months the money saved loses purchasing power as the cost of goods and labor go up.

Last month the rolling 12 month average was north of 7% inflation, IIRC. Which means it was really even higher than that.

Hey that’s a great point. If you would consider the alternative - inflation has existed since the dawn of time (and will continue to exist) and the federal reserve exists for these reasons, I think it still provides a compelling reason to prioritize budgeting over going into debt for non-essentials. Alternatively, not paying interest is a risk-free, tax-free guaranteed return on your future earnings.

But I respect your view point, it is called “personal” finance after all

[Alfisti]

A lot of what dogbone has said is bang on, except the last few points are a bit US centric because the US likes to confuse money matters. There's no time limit her for example.

BRAKE I used t agree with you but anyone who did what you are proposing over the last to years, went backwards.

[Alfisti]

Originally Posted by Joekerr

That's nuts. And its a maple too, which means the wood is desirable. To give you an idea (now some of my trees were relatively small, like probably 10 inches or so diameter), I had 10 trees removed and it cost me $2,800. And that was for them to take it all away, it was junk wood. Now, it was a deal because I know them, probably would have been close to double the price if I didn't know them but still...that seems high.

I am talking stumping too, grind it out. I shopped everywhere, random kijiji guys, guys who advertise etc and the absolute best offer i got was $1800.

[OkieSnuffBox]

Originally Posted by Alfisti

I am talking stumping too, grind it out. I shopped everywhere, random kijiji guys, guys who advertise etc and the absolute best offer i got was $1800.

I was including that as well. Hence my point about the grass being wrecked for a few years unless you sod over it. Same happened at a previous home where I had to have two LARGE trees removed because they became overrun with tree borers. So I had no choice but to take them down, or wait for them to fall on to my house or into the street.

Around here it was only an extra $75 per stump to have them ground out.

[Alfisti]

Originally Posted by OkieSnuffBox

Around here it was only an extra $75 per stump to have them ground out.

Yeah $250 here, best I could find anyway and even then that's barely deep enough to re-sod.

I just had a birch removed last fall, it was already essentially dead, maybe 20 or so feet, not many branches at all, was $900 with stumping.