Reply to House renov/addition: pay cash? Refi? HELOC?

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[quote=Anonymous]Before I even ask, yes, we are incredibly lucky to be in this position, we know that.

We are about to do a reno/expansion on our N. Arlington house, currently 3BR/2BA ~1700 sf finished (2100 total).  We're adding a 1st floor universal access BR/BA; Family room, dining room, turning current tiny kitchen into mud room and current small DR to be enlarged to new EIK w/ small island.  Upstairs, adding a MBR/bath suite, renovating current MBR as a 2nd MBR and complete re-do of one existing bathroom.  Basically not touching 2d bath & 2 other BRs. When done we'll have about 3,100 sf finished.

Est. cost incl. construction estimates, architectural fees, temporary housing (have to move out 4-6 mo. w 2 skittish cats), ~$580k (figure 600k).  Current house value ~$775-800.  We love the lot & location so with transaction costs it doesn't make sense to move to us.

Thanks to careful planning & saving over many yrs. we have the funds available to pay for the work in cash and still have ~$2M in savings & retirement funds.

Current mortgage balance ~$280k, 30 yr fixed 4.875% w/ 26+ yrs to go.  Have been paying off as if a 15-20 yr. (added principal each month).

Part of the idea of the reno. including the 1st floor laundry/handicap acces. BR/BA &c. is to make the house liveable for us for as long we can live independently (57 & 52 now), so we plan to stay for 15-20 yrs. we hope, maybe/we hope more.

Thoughts on these questions?

1.  Should we consider using our existing $150k HELOC (zero balance) on part of the work?  Current rate = 2.5%, we can lock in the rate at any time and turn the HELOC into basically a 10 yr. loan (10 yrs. $100k@2.5% = ~$1k/month).

2.  Should we refinance?  I tend to think not because of transaction costs and the huge PITA that a refin has become at this point.

I plan to retire in 3-5 yrs. and the idea of paying cash was to not add more debt to pay off after, even if we are spending some capital now to do that.  Our investment advisor/setup is aiming for 4-5%/yr. and hitting that, though who knows in the future, right?

I'm still thinking "no" on a refi, but thinking more of putting, say, $100k or so on the HELOC and locking it in at a sub 3% rate.

?thoughts?  .... Thanks.[/quote]

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