finance options

16 years ago

I'm looking for some thoughts and advice on finance options to borrow around $125,000 for a home reno. We currently own our home and it's worth $750,000. The only debt we have is a car loan with $25,000 remaining financed at 2.9% with one year left on the term, yes we chose a very aggressive payment in order to pay it off fast. What would be our best option for borrowing the money, HELOC? Originally I was planning on getting a HELOC and consolidating the two debts but I'd most likely be at a higher interest rate. Now I'm wondering if we should continue paying the car off and keep the other debt separate. It's hard to say if we can handle the payments. This HELOC stuff is new to us, that is why I'm here for advice. Any idea what I can expect for a HELOC interest rate?

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Comments (12)

jeff8407
16 years ago
You might have some trouble finding a HELOC in this market. Here in CA they have dried up. I browsed bankrate.com and I found two, both with APR's above 9%.

Since you own your home, you could refi the property and take cash out. Currently rates are hovering around 5% for a 30 year fixed. If you did a 5/1 ARM (I'm assuming you'd pay off the note at the end of the term) you should be able to take the required cash out, get a note with a rebate that covers all the costs, and still be around 5% interest.

A serious note: since you currently own your home I'd be leery about taking any debt out on it unless you need absolutely need to do so. Many people will argue that you'd be better off investing the money instead of paying off a home. Financially, they could be right, but once you adjust for risk, they may not be. Personally, I own my home an no one can ever take that away. I am an aggressive investor, but I view a personal residence as a sunk cost.
vanisleevt
Original Author
16 years ago
Thanks for the reply.
Just came back from securing a HELOC for 2 .75%. Lucky I'd say these days.
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dave_donhoff
16 years ago
Vanisvleet,
That's outstanding.... in the 3%s is typically the best I am seeing for HELOCS. Who gave you the 2.75% rate?

Congrats!
Dave Donhoff
Leverage Planner
vanisleevt
Original Author
16 years ago
Royal Bank of Canada.
dave_donhoff
16 years ago
Hmmm... RBC.... great, thanks!
Dave Donhoff
Leverage Planner
kangell_gw
16 years ago
Just wanted to chime in that I agree that HELOCs are not dead. I closed in Oct on a HELOC for my primary home at 4.5%. I'm about to close on a 4.9% HELOC on my second home and had a another offer of prime+3%.

Why I'm creating debt with HELOCs is a whole other story but just wanted to let the board know that HELOCs are alive and well in northern Virginia.
qdwag
16 years ago
also refi'd and also took a Heloc..Not a problem, though it is with a local credit union..I had my prior loan with Cha$e, and they were terrible, froze my heloc without warning,..And i could have appealed ,but i would have to incur the costs of hiring an appraiser(Cha$e would give me names they would approve,seems like a conflict of interest?)...
jakkom
16 years ago
>>(Cha$e would give me names they would approve,seems like a conflict of interest?)...>>

Not at all. What they will give you are the names of independent appraisers. You cannot use your friendly local RE agent, nor can you use any appraiser receiving money from a mortgage company or financial institution. Banks are now following FHA guidelines so loans cannot be repackaged unless the appraisal is verifiably 'neutral'. This is to prevent the overly generous appraisals that led to the many bad loans, and the pendulum has merely swung far to the opposite way.

They are providing you with the name(s) of independent appraisers as a service. You don't have to use them, but you would have to find another acceptable independent appraiser, which may be time-consuming for you as a consumer to manage.
qdwag
16 years ago
funny thing is my new mortgage company's appraiser came in 100k+- more then Cha$e's value(likely determined by a computer program,since nobody ever came out)..I question how independent the company would be,if Cha$e was looking to reel in Heloc's anyway,as they have done nationwide..
dave_donhoff
16 years ago
Hi jkom,

Banks are now following FHA guidelines so loans cannot be repackaged unless the appraisal is verifiably 'neutral'.

Actually, ironically enough, FHA is still (and is the only agency) buying loans with direct-ordered appraisals.

It is Fannie and Freddie who've forced the HVCC Act (originally only applicable to NY state loans) nationwide, which many (most?) lenders have adopted as a standard even for loans not sold to those two agencies.

Cheers,
Dave Donhoff
Leverage Planner
jakkom
16 years ago
Thanks, Dave, I knew it was a government agency but mistakenly thought it was FHA when it was Fanny/Freddie.
kudzu9
16 years ago
vanisleevt-
One caution before utilizing your new loan. Have you run the numbers for a worst case scenario so that you know what the payments might be on your "2.75%" HELOC once rates start to rise again? You may be way ahead of me here, but I just thought I'd mention it. It's easy to get used to these low interest rates, and avoid thinking about how much they could ratchet up. I'm not into financial Doomsday scenarios, but I've been keeping my cards close to the vest lately....

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finance options

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vanisleevtOriginal Author

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