Home Equity Loan Pros & Cons?

[mlkgls]

Anyone care to talk me through the pros and cons of various loan options available for a large home improvement project?

This is anti-MM, but for multiple reasons I’ve decided life is short and I think I’ve decided to build a pool a couple years ahead of my own internal timeline. Due to it being earlier than I originally planned, I currently have only about 30% saved aside from my efund, because I had been prioritizing my 401K.

My gut instinct as a sole earner is to go with a home equity loan instead of a personal loan because of the longer term/smaller payment requirement, but pay it off within 2-3 years. The peace of mind and flexibility, if needed, are outweighing any potential negatives. (FWIW, I am in healthcare with a stable job, but generally pretty risk averse. Mortgage LTV is 53% and with a HE loan would still be under 70%.)

Is there anything I might have overlooked? Any tips on where to find the best rate?

(I apologize in advance if this is an insensitive post while so many are out of work. I’m pretty far into the whole process and hoping to talk through the financial piece of it with someone besides myself.)

[sparty04]

We are planning on a pool this summer and are in the process of a cash out refinance. We will pay about 60% cash and use the rest from our refi. We are going from a 30 year with ~27 years left (3.75%) to a 20 year (3%).

DH ran the numbers and this way made the most sense based on the interest rate. We plan to pay more than the minimum balance each month.

[mlkgls]

mofongo, for clarification, none of the actual build process would begin until this has passed, whenever that may be. Even if we weren’t currently under a local SAH order, I wouldn’t have the time to oversee the process yet. I’m hoping to lock down everything else in the meantime. 

sparty04, I considered that but didn’t want to increase my mortgage payment for the entire life of the loan. For some reason it feels different, safer? (to me) to aggressively pay down the home improvement loan over a few years vs an increase over the next twenty. 

[flygirl]

I’m not sure what your interest rate is on your first mortgage, but generally 2nds are much higher and if you did a line of credit vs a loan, the rate will fluctuate with prime. A loan means it starts immediately though so if you put your project on hold, you could be paying interest while waiting to start. I know you said that you don’t want to have the higher payment for the term of the loan, but I wonder if rates would make that minimal.

[sparty04]

Mar 30, 2020 6:34:08 GMT -5 mlkgls said:

mofongo, for clarification, none of the actual build process would begin until this has passed, whenever that may be. Even if we weren’t currently under a local SAH order, I wouldn’t have the time to oversee the process yet. I’m hoping to lock down everything else in the meantime. 

sparty04, I considered that but didn’t want to increase my mortgage payment for the entire life of the loan. For some reason it feels different, safer? (to me) to aggressively pay down the home improvement loan over a few years vs an increase over the next twenty. 

Understandable. At our bank, a home equity loan is higher interest and there was still closing costs involved. So we ran numbers about 5 different ways and this was going to be the best decision financially for us, but I know that every situation is different.

[mlkgls]

Mar 30, 2020 19:23:12 GMT -5 Stan said:

Mar 30, 2020 13:23:49 GMT -5 flygirl said:

I’m not sure what your interest rate is on your first mortgage, but generally 2nds are much higher and if you did a line of credit vs a loan, the rate will fluctuate with prime. A loan means it starts immediately though so if you put your project on hold, you could be paying interest while waiting to start. I know you said that you don’t want to have the higher payment for the term of the loan, but I wonder if rates would make that minimal.

The bank I work for has 3.99 for 15 years fixed. Or did last week. I haven't even checked this week because we stopped calling our clients with offers. 

I was quoted 3% for a refinance a few weeks ago, but missed my chance when the market went haywire. I wish more banks would post their home equity loan rates on their websites without the hassle of having to enter your contact information; the thought of a barrage of calls is holding me back from entering my info on someplace like Bankrate or lending tree. 

[simpsongal]

DH and I shopped around in February for loan options. We're renovating our bathroom and we want to do a small addition soon too (saving some cash and planning to pay it all off quickly).

The HELOC was the best option for us. Our original 30-yr mortgage is fixed at 3.5%, we couldn't find a rate for a cash out refi, second mortgage, or construction loan that would compete w/the deal on our current mortgage (even a 20 yr mortgage didn't compete). I consulted a very helpful mortgage broker on the whole thing - even though she wouldn't see a dime if we did the HELOC, she agreed it was the best option. The HELOC is like 1 point above prime, which is like 2.5% now. It is variable though.

So again, it sort of depends on your circumstances, current rates, amount you need (I can't remember the particulars but she explained the construction loan only makes sense if you need like $200K +). Our HELOC is for $75K (we haven't used it yet since COVID hit just as it closed and we were about to get our reno started).

[mlkgls]

Stan, thank you for the google voice reminder! I did this and received what feels like 30 calls in 10 minutes so this was definitely worth looking into. Of course everyone seems to want to talk about a refinance, but at least they don’t have my direct number.

simpsongal, maybe it’s the market rollercoaster of the last few weeks, but all of the HELOC rates I’ve seen this week have been only slightly lower than the few HE rates I have found and I didn’t like the variability of it. I may reach out to my mortgage broker and see what she suggests rather than continue to spin my wheels.

[mlkgls]

Mar 31, 2020 20:13:51 GMT -5 Stan said:

Mar 31, 2020 18:25:58 GMT -5 mlkgls said:

Stan , thank you for the google voice reminder! I did this and received what feels like 30 calls in 10 minutes so this was definitely worth looking into. Of course everyone seems to want to talk about a refinance, but at least they don’t have my direct number.

simpsongal , maybe it’s the market rollercoaster of the last few weeks, but all of the HELOC rates I’ve seen this week have been only slightly lower than the few HE rates I have found and I didn’t like the variability of it. I may reach out to my mortgage broker and see what she suggests rather than continue to spin my wheels.

Who do you bank with? I know for us, with the fixed rate lines, we actually have to look you up. Most of us in my company are bored right now, except for fielding random incoming calls, we're not doing a lot. If you called me, and specifically said, "I just want to know my relationship/personalized fixed rate, I do not want you to call me in the future, I will call you when/if I decide to do it", I would note that and in fact put you on our do not call list. I would hope that respecting your wishes got you to actually do the loan with me rather than online, but honestly to me, it's most important that you have a good view of the institution and bankers in general. In concert with your mortgage broker, I honestly suggest reaching out to your local branch via phone. 

I have accounts with a couple of the larger banks, but part of my problem is time. I have nearly zero free time during business hours at the moment, which is why this piece of the process is so frustrating to me.

Your post prompted me to look at one of their websites again though and while I don’t see a HE loan option I do see a HELOC fixed rate lock option...I’m wondering how this differs?