Author Topic: Should I do a Cash Out Refi or HELOC?  (Read 1004 times)

NotBadForADad

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Should I do a Cash Out Refi or HELOC?
« on: April 21, 2022, 09:01:43 AM »
I financed my house back in 2019 for $252000.

I have made A LOT of renovations to the house i.e. New flooring through, new paint throughout, finished my basement, brand new cabinets in the kitchen. According to Zillow, their zestimate (sounds spicy!) on my property is close to $420000 (before appraisal of renos).

I have a small amount of debt left to tackle ~$8000. My wife need a root canal, and I was thinking about putting in a patio.

I just started a new position with a company about 6 miles from my house and am taking home ~$1400/wk.

Now, I could save up/pay off these in a few months time, but I want to understand the options of a cash-out or refi.

reeshau

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Re: Should I do a Cash Out Refi or HELOC?
« Reply #1 on: April 21, 2022, 09:41:23 AM »
Whatever you do now, it will cost more than your current mortgage.  If you are looking to pay off such small things, you have to take into account the extra cost on that whole mortgage.  A 30 year fixed for $201,600 (80% of your financed house) is a $850/mo payment.  The same thing at 5% is $1,082.  Over a 30 year life, that would be $84,000 more in interest.  How does that compare to what these current debts are racking up?

So, the first cut MMM advice should hold--cash flow your debts.

If you were going to *invest* a good chunk of your new house, you might get some supporters.  But interest rates are going up, cash refi rates are above the public standard rate, and HELOCs are floating, so they will continue to go up for the near term.  Meanwhile, the stock market isn't looking its healthiest; with high inflation, returns aren't likely too be too good, either, in a similar timeframe.

Might it work out?  Sure.  You probably won't hold the mortgage for a full 30, either.  But you are taking a gamble doing this now.  It might cost you quite a bit, particularly if the worse elements of the economy persist for some time.

Why didn't you do it last year?  Would have been a better time.  If you don't know the answer, then you might be suffering a bit of FOMO, like the buyers still in the housing market at the moment.

six-car-habit

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Re: Should I do a Cash Out Refi or HELOC?
« Reply #2 on: April 21, 2022, 12:09:11 PM »
 House might have been deep into the renovations last year, and was waiting for it to look finished before an walk-thru appraisal [?}

  Options are available for a re-fi / heloc certainly - , i've used them in the past, but i ended up paying $$$$ in closing costs, making trips to sign new legal paperwork, county filing fees, etc.    I regret it, but % rates were higher then, and i didn't get an advantageous deal where the bank covered all the closing costs like some folks here have.

  Unless you wanted to pull out 25% or more of the new value , i wouldn't bother.  The things you list :  Root Canal + associated dental work, $8000 debt, Patio --- seem like you could get them done in 1 month, 4 months, and 4 months if you just cash flowed them. Figuring you have approx 6K net each month, i'll guess you could put 2K/mo. toward these things if motivated...

NotBadForADad

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Re: Should I do a Cash Out Refi or HELOC?
« Reply #3 on: April 21, 2022, 12:31:56 PM »
House might have been deep into the renovations last year, and was waiting for it to look finished before an walk-thru appraisal [?}

  Options are available for a re-fi / heloc certainly - , i've used them in the past, but i ended up paying $$$$ in closing costs, making trips to sign new legal paperwork, county filing fees, etc.    I regret it, but % rates were higher then, and i didn't get an advantageous deal where the bank covered all the closing costs like some folks here have.

  Unless you wanted to pull out 25% or more of the new value , i wouldn't bother.  The things you list :  Root Canal + associated dental work, $8000 debt, Patio --- seem like you could get them done in 1 month, 4 months, and 4 months if you just cash flowed them. Figuring you have approx 6K net each month, i'll guess you could put 2K/mo. toward these things if motivated...

We had pipe break in August and took advantage of the insurance money as I did a majority of the work myself as I used to be a builder. It was all cosmetic damages anyway.

You thought was exactly my thought as I was writing this out. I just wanted to have a second eyes on this to weigh the options, but you absolutely make sense. I was feeling a little impatient on the cash flow side but I'm so close to being out of debt that I am not wanting to dig the hole deeper.


six-car-habit

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Re: Should I do a Cash Out Refi or HELOC?
« Reply #4 on: April 21, 2022, 02:39:42 PM »
  When i got my Heloc from my former house paid off, and cancelled + cut up the remaining credit cards i had, essentially it meant I was caught up on paying for past debts and wants. It was a great feeling to have zero debts except the 1st mortgage, and real equity in the house.   

   On the heloc i'm sure i paid about $400 for the appraiser to come out, do a quick walk thru, take some pictures, write a report and find some 'comprables' in the area. That was 10+ years ago, it might cost more now.  You could probably get a large pallet of beautiful stone from our local landscape supply priced @ $400 for the patio instead...

  We ended up raising our deductible on our new house insurance policy, to get lower annual rates. Part of the reason was, if any calamity happened that cost less than $5K to repair, we figured we would attempt to DIY + cash flow the fix, instead of making a claim. For some huge event like a fire or a massive tree crushing the roof rafters, we would just pay the high deductible and call in the professionals.

travel2020

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Re: Should I do a Cash Out Refi or HELOC?
« Reply #5 on: April 22, 2022, 08:28:02 AM »
Since the amount seems small, refi really doesnt make sense for reasons already mentioned (you’d be paying more over time due to higher interest rates).

Heloc is probably a more reasonable option especially if the bank is willing to waive the appraisal fees etc. Last time I did a heloc, I think total cost was something like $150 because they waived the appraisal.

Other things you can explore:
- pay for the root canal bill in installments. I’ve had several situations where we had unexpected medical bills and in all cases, the medical offices were more than happy to get paid over 3-5 installments w/o interest
- for home Reno, large box office stores like Home Depot sometimes give you interest free financing for larger purchases.I’ve done that with appliances, windows, etc. in the past so might be worth exploring.


sonofsven

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Re: Should I do a Cash Out Refi or HELOC?
« Reply #6 on: April 22, 2022, 08:43:43 AM »
HELOC can be faster and cheaper but with higher interest rates.
ReFi with a cash out is going to cost more than a non cash out, and rates are going up.
What's your rate and term from your 2019 purchase?
With either option I would take care of that  $8k debt before you apply.
You may have the option of writing off the closing costs if all the proceeds are used for home improvement, but check the details carefully.
Another option for the purchases you have upcoming is to put them on a 0% credit card and pay them off before the rate resets.

Villanelle

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Re: Should I do a Cash Out Refi or HELOC?
« Reply #7 on: April 22, 2022, 09:13:37 AM »
I'd do neither. 

And I wouldn't put in a patio while I still have debt, apparently little or no emergency savings, and not enough money to cash flow necessary dental work. 

Pay off the debt, fund the root canal which presumably can't wait, then save up at least $5k, *then* save up enough for the patio and then pay for it when you do it.   Right now you can't afford it.


Visitation

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Re: Should I do a Cash Out Refi or HELOC?
« Reply #8 on: April 22, 2022, 11:41:58 AM »
I'd do neither. 

And I wouldn't put in a patio while I still have debt, apparently little or no emergency savings, and not enough money to cash flow necessary dental work. 

Pay off the debt, fund the root canal which presumably can't wait, then save up at least $5k, *then* save up enough for the patio and then pay for it when you do it.   Right now you can't afford it.
^^^^ +1

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NotBadForADad

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Re: Should I do a Cash Out Refi or HELOC?
« Reply #9 on: April 23, 2022, 07:45:42 AM »
I'd do neither. 

And I wouldn't put in a patio while I still have debt, apparently little or no emergency savings, and not enough money to cash flow necessary dental work. 

Pay off the debt, fund the root canal which presumably can't wait, then save up at least $5k, *then* save up enough for the patio and then pay for it when you do it.   Right now you can't afford it.

Thats where I'm headed. I've been doing the Dave-ish method for a while with the baby steps and we've been lucky nothing major has happened. Other than the pipe break, but insurance paid us and I've been doing the work.

As someone mentioned before, I realistically could hammer out the debt in 4 months, but my hope would be Christmas. My wife's root canal would only be about $1200.

Also, I don't need a patio at the moment. I'm so tired of working on the house these past 8 months that I need to take 8 months to just relax when it's done.

Another person asked what my rate is:
30 year at 3.5%.
Mortgage, insurance, escrow: $1800/mth

 

Wow, a phone plan for fifteen bucks!