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Old 09-11-2004, 01:32 PM  
Taco John Taco John is offline
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Home Equity Loan vs. Refinancing...

I'm considering doing one or the other to pay some credit debt down and build a deck. Perhaps I don't understand this as well as I should... But here is my case:

I have a home that has appreciated in value considerably over the last two years. Based on houses around the area, our house could be worth over $210,000. Our current balance is about $170,000. We have a 4.5% interest rate.

I'd like to take advantage of that equity as best I can, but I'm not sure if I should try to cash out refinance (if there really is such a thing) and try to pull some of that equity out or go for a home equity loan. Or if that is pretty much the same thing.

I'm a first time home owner, so some of this baffles me a bit... Any light shed would be greatly appreciated.
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Old 09-11-2004, 01:34 PM   #2
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Old 09-11-2004, 01:38 PM   #3
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Is the 4.5% fixed?
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Old 09-11-2004, 01:39 PM   #4
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You should only refinance if you can get a lower rate. It'll generally cost a few thousand dollars to refinance, so it's not a good idea unless you can save that money back through lower payments. Remember too that the "lower payments" promised by many refinancers occur in part because you've added several years back onto your mortgage.

That said, if you can do the math and save money through a lower interest rate, refinancing is a good idea.

If you're using the money to build a deck or something, you're probably better off doing a home equity loan. A lot of places offer no-fee loans now, so you can get the money without paying for the application process, and you can get a really good rate, too.

The only downsides with a home equity loan are that your monthly expenses will be a bit higher since you're paying the money off faster, and home equity loans are usually variable rates, so you've got risk if the prime rate rises over time.
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Old 09-11-2004, 01:52 PM   #5
2bikemike 2bikemike is offline
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Personally I would take out a Home equity line of credit. Just don't get stupid with it. Then you can use it as you need it. Plus you can write it off. I know some people who use their line of credit to purchase cars. They make the full payment and write off the interest.

I used mine to re-landscape my yard and built a really nice big shed and a Patio cover.

We are only required to pay back the interest on a monthly basis which would still leave all the principal due at the end of the term. We pay on the principal every month anyway. We don't want to get stuck with a big balloon payment at the end of the term. IMHO it would be foolish to only pay the interest unless your home was appreciating really fast and you plan to sell it in the near future.
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Old 09-11-2004, 02:25 PM   #6
Taco John Taco John is offline
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Quote:
Originally Posted by Michael Michigan
Is the 4.5% fixed?

No, it's variable. It cannot go up more than one full point per year and caps out at 9.0.
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Old 09-11-2004, 02:27 PM   #7
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Good tips in this thread... Thanks!
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Old 09-11-2004, 04:02 PM   #8
Michael Michigan Michael Michigan is offline
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Quote:
Originally Posted by Taco John
No, it's variable. It cannot go up more than one full point per year and caps out at 9.0.
One quick idea, if you can get it fixed at a low rate now, and get the cash you need, it might not be a bad idea.

Just watch the fees and points.

Or are you paying a bunch of extra principal each month to get it down?
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Old 09-11-2004, 06:00 PM   #9
RedNFeisty RedNFeisty is offline
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Alright, if you have a credit score of at least 620 with no late pays, I would consider refinancing and get a fixed rate. Even if you get a rate of 5% or 5.5% at least it will not increase up to 9%.

If your credit is not above a 620, then a line of credit would probably be your best bet. You will more then likely get up to 85% of the value of your home (yes, there are programs that can get you up to 100%). If your home is worth $210K, that would give you $8K to play with. Don't forget your fees would come out of that eight grand if there are any. Banks normally will not deal with someone with under a 620 score, therefore, you will generally have fees. Good luck!!
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Old 09-11-2004, 07:15 PM   #10
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Quote:
Originally Posted by RedNFeisty
Alright, if you have a credit score of at least 620 with no late pays, I would consider refinancing and get a fixed rate. Even if you get a rate of 5% or 5.5% at least it will not increase up to 9%.

If your credit is not above a 620, then a line of credit would probably be your best bet. You will more then likely get up to 85% of the value of your home (yes, there are programs that can get you up to 100%). If your home is worth $210K, that would give you $8K to play with. Don't forget your fees would come out of that eight grand if there are any. Banks normally will not deal with someone with under a 620 score, therefore, you will generally have fees. Good luck!!

You can get a fixed rate for 5 or 5.5%?!?!

Is that only for 15 year loans?
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Old 09-11-2004, 07:29 PM   #11
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Quote:
Originally Posted by Fat Elvis
You can get a fixed rate for 5 or 5.5%?!?!

Is that only for 15 year loans?
Right now, yes! Some private banks are lower.
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Old 09-11-2004, 07:36 PM   #12
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Quote:
Originally Posted by RedNFeisty
Right now, yes! Some private banks are lower.

What can you get for a 30 year loan? I wouldn't be looking to close until mid April or may depending upon completion of the house.
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