Paying for home projects - cash or HELOC?

[Anonymous]

Anonymous wrote:

Anonymous wrote:OP you don't need a calculator-- if you are comparing investing in a taxable account against paying off a tax deductible debt, then the tax issue washes out (reduces both your income and the cost of borrowing) so if you just want to know how much you have to earn to make it worthwhile to carry the HELOC, the answer is whatever the interest rate is on the HELOC.

Of course it does. Thanks!!

sure-- now if you could just tell me where I can find a solid 3% return over the next 2 years that would be great.

[Anonymous]

try www.bogleheads.org for advice. It's a forum for finance/investing questions for ordinary people. There may already be a thread on this topic; there is one there now on paying off a home vs keeping the mortgage and investing the $. Pros and cons for each. Your situation is similar.

I have the same situation only in smaller amounts. We have a dental bill for $13,000 which I paid off using a CC for the 1% back. Now I need to pay the CC bill in full, with a mix of HELOC (nothing on it now) and savings. Looking at a mix.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:cash, that is not a lot of money and keep the heloc just in case you decide to do more renovations

Speak for yourself! For most people in the country -- myself included -- $100k is a LOT of money. Borrowing 100k will increase our TOTAL debt (all debt including mortgage) by 50 percent. It's also significantly more than our annual income. It's almost half what I paid for my entire house.

Even among some of the mega rich that seem to hang out here, $100k is a lot of money.

This is the OP by the way and I appreciate the suggestion of the other poster. We may take that approach.

I'm with the pp for the most part, you shouldn't do 100K renovations if you think it's a lot of cash. Michelle Singletary says the only thing you should use a HELOC for is emergency repairs, like a roof. Anything cosmetic is a want and you should pay cash for it. We just did 200K in renovations and put just under 50K on HELOC. We saved for years, have no other debt, and a 15 year mortage that is well less than half the home's value, fwiw.

Sigh. OP here again. Having a conversation here sometimes is like banging my head against a brick wall. If you saved for years how on earth can you not think it's a lot of money? I wasn't asking if we can afford it, and we certainly can. Here, lets see what you think: We have a net worth of over $1million. Our home is currently worth about $600k but we owe less than $400k. We have 15 years left on the mortgage but could pay off the entire amount tomorrow, cash. Apart from our (small by DC standards) mortgage we have NO other debt. Still, $100k IS A LOT OF MONEY!

I think my question seems to have been lost here. Among the drivel and people who think that $100k is pocket change, there is sometimes some pretty good advice here that can raise issues that might other wise have been overlooked. What I'm asking isn't whether we can afford it, but whether we are better off investing the cash and getting X rate of return (where X may be negative depending on how it is invested but may well beat out the cost of interest on the HELOC plus advantage of being tax deductible.) Does anyone have any thoughts on that matter? If not, I shall consult google and see if I can find a calculator or spreadsheet program that will help me work out what rate of return I'd need to get for it to make sense to borrow rather than spend.

My answer still stands with your general OP, and limited information. Because it's a cosmetic renovation pay it off. You *may* be able to get a slightly better rate of return, but given the new information on your 1m net worth, then yes, 100K is a pretty small figure. When you consider that it's going to something totally unnecessary (you didn't mention a leaky roof) then yes, you could argue it's a lot of discretionary money. I never said it was pocket change, you just got your panties in an angry wad.

[Anonymous]

You may want to look at your HELOC for the terms. Some of the HELOCs have an option to fix so if you borrow the 100K from the HELOC at 2.75% and interest rates remain low, you can let it float. If they start to creep up, you can lock it in at still a very low rate.

I've done something similar and am letting it float (currently I'm at 2.99%). I took the cash I was going to use to pay for the renovations and put it in solid quality blue chip diviend paying stocks. I'm making an average of 4% in dividends on the stocks I invested plus any appreciation of the stock. I'm very well diversified so I realize this strategy is not for everyone, but it's working out very nicely for me. If you don't have the time to select the individual stocks, you may want to look at some dividend growth mutual funds that have attractive yields and less fluctuation in the price of the security.

I'm more of a buy and hold guy so I can wait out any fluctuations in the market and with an average 4% yield, and 10% growth in dividends every year, it's a no brainer for me. Good luck to you whichever way you decide to go! Another benefit is that you are getting a tax deduction for your interest payments against your ordinary income (presumably a higher rate than what you are paying on the dividends (15%)).

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:cash, that is not a lot of money and keep the heloc just in case you decide to do more renovations

Speak for yourself! For most people in the country -- myself included -- $100k is a LOT of money. Borrowing 100k will increase our TOTAL debt (all debt including mortgage) by 50 percent. It's also significantly more than our annual income. It's almost half what I paid for my entire house.

Even among some of the mega rich that seem to hang out here, $100k is a lot of money.

This is the OP by the way and I appreciate the suggestion of the other poster. We may take that approach.

I'm with the pp for the most part, you shouldn't do 100K renovations if you think it's a lot of cash. Michelle Singletary says the only thing you should use a HELOC for is emergency repairs, like a roof. Anything cosmetic is a want and you should pay cash for it. We just did 200K in renovations and put just under 50K on HELOC. We saved for years, have no other debt, and a 15 year mortage that is well less than half the home's value, fwiw.

Sigh. OP here again. Having a conversation here sometimes is like banging my head against a brick wall. If you saved for years how on earth can you not think it's a lot of money? I wasn't asking if we can afford it, and we certainly can. Here, lets see what you think: We have a net worth of over $1million. Our home is currently worth about $600k but we owe less than $400k. We have 15 years left on the mortgage but could pay off the entire amount tomorrow, cash. Apart from our (small by DC standards) mortgage we have NO other debt. Still, $100k IS A LOT OF MONEY!

I think my question seems to have been lost here. Among the drivel and people who think that $100k is pocket change, there is sometimes some pretty good advice here that can raise issues that might other wise have been overlooked. What I'm asking isn't whether we can afford it, but whether we are better off investing the cash and getting X rate of return (where X may be negative depending on how it is invested but may well beat out the cost of interest on the HELOC plus advantage of being tax deductible.) Does anyone have any thoughts on that matter? If not, I shall consult google and see if I can find a calculator or spreadsheet program that will help me work out what rate of return I'd need to get for it to make sense to borrow rather than spend.

My answer still stands with your general OP, and limited information. Because it's a cosmetic renovation pay it off. You *may* be able to get a slightly better rate of return, but given the new information on your 1m net worth, then yes, 100K is a pretty small figure. When you consider that it's going to something totally unnecessary (you didn't mention a leaky roof) then yes, you could argue it's a lot of discretionary money. I never said it was pocket change, you just got your panties in an angry wad.

It's not a cosmetic renovation. It will enable us to continue to live in the house for another ten years. Otherwise we would have to move.

[Anonymous]

Anonymous wrote:You may want to look at your HELOC for the terms. Some of the HELOCs have an option to fix so if you borrow the 100K from the HELOC at 2.75% and interest rates remain low, you can let it float. If they start to creep up, you can lock it in at still a very low rate.

I've done something similar and am letting it float (currently I'm at 2.99%). I took the cash I was going to use to pay for the renovations and put it in solid quality blue chip diviend paying stocks. I'm making an average of 4% in dividends on the stocks I invested plus any appreciation of the stock. I'm very well diversified so I realize this strategy is not for everyone, but it's working out very nicely for me. If you don't have the time to select the individual stocks, you may want to look at some dividend growth mutual funds that have attractive yields and less fluctuation in the price of the security.

I'm more of a buy and hold guy so I can wait out any fluctuations in the market and with an average 4% yield, and 10% growth in dividends every year, it's a no brainer for me. Good luck to you whichever way you decide to go! Another benefit is that you are getting a tax deduction for your interest payments against your ordinary income (presumably a higher rate than what you are paying on the dividends (15%)).

Thanks, this is what I figured. We need to do some more research to work out what (if anything?) might get us a 4 percent return. I'm leaning toward maybe a half and half and investing the rest in something income producing that will hopefully generate more income than interest paid.

[Anonymous]

I'm with 50/50