Author Topic: Help deciding between HELOC and mortgage  (Read 870 times)

Karinajane8

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Help deciding between HELOC and mortgage
« on: April 28, 2017, 08:02:19 PM »
I am currently trying to decide between a few options.  I'd love input/help with the math.
My husband and I are beginning construction on our home (he is a builder/log home kit sales).  We will still own the "model home" we've been living in and using as an office meaning there are 2 mortgages in our future.
Options:
(1) Should we take out a HELOC on the property (best I can find locally is prime (4% right now)) to fund construction costs over our savings then refinance at completion?
(2)(a) Should we take out a mortgage right now (15, 20, 30?) to hopefully lock in a lower rate than we could get in 12-18 months (and avoid a second closing)?
(2)(b) If we go this route, do we aim high? 

(Numbers just in case: Construction estimate is 300k, we've already paid about 50k, have 100k earmarked to spend from savings, and will aim to keep final project well under estimate.  We're adding another kiddo and my salary will be halved starting this fall when I go part-time so keeping costs/payments low is a priority)
Thanks in advance!

Goldielocks

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Re: Help deciding between HELOC and mortgage
« Reply #1 on: April 29, 2017, 12:13:16 AM »
Your lender could give you a construction loan / mortgage, where they provide lump sums as the construction progresses, which keeps your costs lower.


We did the HELOC, then when the place was done, refinanced it as a mortgage.   That way the money was only borrowed as we needed it, and we did not have to ask the bank for set amounts ahead of time.

Karinajane8

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Re: Help deciding between HELOC and mortgage
« Reply #2 on: April 29, 2017, 07:25:05 AM »
Thanks!  In our case, a HELOC is preferable to a construction loan because of a lower interest rate, the fact that my husband is our contractor (usually a non-starter for a construction loan) and we can't be tied to a 12 month construction period.  The busier he is, the better on the money end but the slower our project will progress!  We are lucky to have a lot of equity in the property already so the value won't only be created during the build.