Reply to how do you pay for house projects (big ones)?

Forum Index » Home Improvement, Design, and Decorating

Reply to "how do you pay for house projects (big ones)?"

Subject:

Emoticons





More smilies

Text Color: Font: Close Marks

[quote=Anonymous][quote=Anonymous][quote=Anonymous]Not OP but can someone explain to me (like a child) how a HELOC works?

Let's say we bought a house last year for $800k and want to do $100k of work. Now what?[/quote]

I think you can shop around, but we just went to our mortgage lender and asked what they could do for us.  They waived the appraisal and the associated fees, but that's where the process starts.  They  need to make sure there is sufficient equity in the house such that you qualify for a HELOC and how big the line will be.  Once you move forward, you sign a bunch of documents just like you did when you got a mortgage.  You get a checkbook where you can draw from the line, but you can also do it via online transfers.  Then you pay interest on the balance that you have drawn from the line, or you can pay it back.  If you sell the house, you'll obviously have to pay the balance back at closing. [/quote]

The poster asked what is a HELOC.

A bank will give you a line of credit for some chunk of your home equity. Ideally, your mortgage+HELOC is under 80% of the value of your home.

During the "draw" period (often 10 years) you can write a check to spend money from the HELOC (we usually write a check and drop it into an account). When you have a balance, you'll have a monthly payment similar to a mortgage. The "repayment" period is often 15 years versus the 10 year draw period.  Interest is usually variable.

If you are doing a big project, you could get what i think is called a fixed rate advance -- essentially a loan from the fund with a fixed interest rate. You'd negotiate those terms separately, and as you pay back principal it goes back into the main HELOC to be potentially tapped as needed.

For us, we have an $80K fund. We initially got a fixed rate advance for the whole amount, and set it up to pay interest only while the project was going on, so we'd keep our extra cash for overages. When the project finished we realized that a) our current interest rate was higher on the fixed rate advance than the variable rates and b) we had plenty of cash to pay it off as we went. We paid back about $65K in a year, and then tapped it again for a new furnace/A/C. We have again about $50K to tap if we need it.

If used for home improvement, interest is tax deductible.

Hope this helps![/quote]

Options

	Disable HTML in this message
	Disable BB Code in this message
	Disable smilies in this message

Review message

Search Recent Topics Hottest Topics