We are doing a backyard renovation this fall and will need to come up with ~ $50k. It’s possible we’ll have saved most or all of this in our checking before we need to pay it, but we’re not there yet. Also the current bill may get slightly bigger because I keep changing things, so I’m looking into financing options. Which one is better?
We have an investment account (non-retirement) so I could sell something and pay it that way. But we got walloped in taxes for last year. I’m hesitant to do that again, especially if the market is doing well in the fall.
I’ve never had a HELOC before but I’m leaning towards doing this, since the rates are low (at least, in the ads). On my bank’s website it says there are no closing costs. Are there any other fees or “gotchas” I need to watch out for?
Many financial institutions have an option to set up a loan against your invested assets at a very low interest rate, so that you can access the value but not have to sell the assets and take a tax hit.
I’ve had a HELOC in the past and really there were no fees if we withdrew $10k at closing. We didn’t need it at that point, and they said to hold the $10k for a few days and then you could pay off your loan.
When I did need to use it to finance renovations, I just transferred $ from our HELOC or wrote a check . My interest rate at the time was variable (I think LIBOR + 1% or something), it was low though. And my monthly payment was a % of the balance of the HELOC. That would be the only thing to look into. I believe ours was 2% of the balance was due monthly.
We went through a credit Union and I believe they allowed you to open a line up to 90% of your homes value (value less 1st mortgage). If your house was worth $100k, 1st mortgage was $70k, then you could have a HELOC for $20k (70+20 would be your loaned house value of $90k total).
It was a really easy process and you could keep the HELOC open for 20 years. We did a refi on our primary mortgage about 1.5 years ago and they required me to close the HELOC at the time.