Quick Poll: Paying for a remodel

[thelamb]

Curious how this community would act/vote.  Here are the details:

Current est value of property:  $350k
Principal on mortgage $218k @ 2.875%, 3 years in on 10 year ARM
Debt $7k on HELOC @ 4.25%
Cash on hand $20k
After 401k and investment contributions ($3.6k in total), should have $1k/month left over in cash

Planning a ~$25k remodel featuring some safety/child-friendly upgrades and converts 2 bed 1 bath to 3 bed 2 bath, not an addition, just much better allocation of space. 

Expected value of house after:  $400-440k, based on comps, 3 bed/2.5ba makes a pretty big difference

I see three major paths to pay for this:

Option 1:  pay off current debt, save for a year, pay with cash. 

Option 2:  do immediately, incur another $5k in debt, pay off over the course of a year (cost in interest is ~$277 - I did the math :) ).

Option 3:  refinance, probably 15 year @ 3.25% or thereabouts, for $325k.

What says you?

Thanks!

[Cheddar Stacker]

$277/month seems high. Are you borrowing the full $25K? Even then it should only be ~$100/month in additional interest.

I'd use the cash on hand, do it now, and in 12 months you'll be down to just the mortgage after 5 months of $1K savings going toward the reno and the other 7 months going to the HELOC. And if the SHTF, fall back on the HELOC.

[thd7t]

With such a short timeline, I'd wait and pay cash.  I'd also save some extra cash, because that seems like a very inexpensive renovation, considering the home value.  It might creep up on you.

[Pigeon]

With such a short timeline, I'd wait and pay cash.  I'd also save some extra cash, because that seems like a very inexpensive renovation, considering the home value.  It might creep up on you.

I agree.   If you aren't doing the work yourself, that seems like a low estimate to do what you describe.

[Cheddar Stacker]

$277/month seems high. Are you borrowing the full $25K? Even then it should only be ~$100/month in additional interest.

I'd use the cash on hand, do it now, and in 12 months you'll be down to just the mortgage after 5 months of $1K savings going toward the reno and the other 7 months going to the HELOC. And if the SHTF, fall back on the HELOC.

So, I read 277/month but you wrote 277 total. My bad. Very small price to pay. Do it.

[ShoulderThingThatGoesUp]

I agree, that's way too low a number for that remodel unless you're doing the work.

[Cheddar Stacker]

I agree, that's way too low a number for that remodel unless you're doing the work.

It's just a couple walls and a toilet people. Add a closet to an office, cut a corner out of the dining room, plop in some plumbing. That shouldn't cost more than $25K, even with a contractor doing it. If I were doing it myself I'd imagine spending $5-8K based on what OP described.

[thelamb]

@ Cheddar Stacker: 

$277/month seems high. Are you borrowing the full $25K? Even then it should only be ~$100/month in additional interest.

not $277 a month.  $277 total.  The per month interest cost ($12k * (.0425/12)) + ($11k * (.0425/12))...

[thelamb]

Cheddar Stacker - I should've read farther. You caught the difference.  My bad.  :()

[waffle]

Unless you are planning on selling soon and want to capture that extra equity of the remodel then I'd just wait till you had the cash for it. If you aren't going to sell then the increase in value is irrelevant, so if you can stand living in it as is for a while just go the cash route.

[thelamb]

Interesting, an almost 50/50 split in voting with nobody liking the refi option (neither did I).  The non-financial arguments for doing now is simply to reap the benefits of the improvements now and my SO and I are discussing a kid in the semi-near future and having this done before would aid in that greatly. 

Anyway, another question I'd like to tack on:  I contribute $2k a month to a money market account for purchases of Vanguard funds.  With the market still shaky, possibly declining more, would it maybe be wise to forego this contribution for the next 2-3 months and instead contribute to this project, thus eliminating the need to increase my debt? 

[KCM5]

Interesting, an almost 50/50 split in voting with nobody liking the refi option (neither did I).  The non-financial arguments for doing now is simply to reap the benefits of the improvements now and my SO and I are discussing a kid in the semi-near future and having this done before would aid in that greatly. 

Anyway, another question I'd like to tack on:  I contribute $2k a month to a money market account for purchases of Vanguard funds.  With the market still shaky, possibly declining more, would it maybe be wise to forego this contribution for the next 2-3 months and instead contribute to this project, thus eliminating the need to increase my debt? 

This is exactly the time not to forgo contributions.

[thelamb]

This is exactly the time not to forgo contributions.

Ha.  You're right, you're right!  I'll punch my face now.