Author Topic: HELOC Case Study  (Read 910 times)

evensjw

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HELOC Case Study
« on: July 26, 2018, 12:00:10 PM »
Hello,

Can I please get some advice on whether a HELOC makes sense for me in this situation?

My home is worth ~ $295,000
I have a balance of about $136,000 on a mortgage at 3.75%, about 16 years left on a 20 year term.  PITI is about $1250/mo

I just paid $8000 for a new roof.  I put it on a credit card (0% interest until Mar 2019).  I have the cash to pay it but it's a bit tight so gave myself a bit of a cushion.
Now I need to get about $18,000 of work done on my foundation.

The company doing the work offers 4.99% fixed rate financing for 84 months.  $29 origination costs.  Would need to put a 20% deposit which I would put on the same credit card and probably be able to pay it off before my 0% rate runs out.  But, I will definitely be in a bit of a cash crunch for a while. 

Or I could get a HELOC.  Looks like my high street bank will give me one with no closing costs and a rate at around 6.09% fixed for 10 years.  Or if I took at least $25,000 I could get a variable rate that starts at 3.74% for 12 months then rises to 5.49% *at current rates*.  Not sure I want to risk a variable rate given rates are so low right now, they can only go up. 

But, I figure I could claim all $25000 (or whatever amount) as being used for substantial home improvement this year and deduct the interest.  I am nowhere near the deduction limits for property-related interest, and I'm in the 25% bracket at least (or did all that just change?).  So does that mean my 6.09% rate is effectively 25% lower (~4.5% effective), making it more competitive with the 4.99% financing?

Thanks for any guidance.
JWE

patchyfacialhair

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Re: HELOC Case Study
« Reply #1 on: July 26, 2018, 12:36:52 PM »
I would choose the 4.99 fixed.

It's a simple monthly payment, less stress about variable rates, and 7 years payoff worst case scenario.

Can you find another zero percent credit card for part of it to help with the amount financed?