Cash-out refinance/HELOC/other options?

cbee817 · June 2016

DH and I have been thinking of doing an entire outside sweep of the house- new siding for house and garage, new front door, new porch, new garage door, new columns for our side entrance. There is a local company that does everything and uses a type of siding that we're interested in. We haven't gotten an estimate yet, but I don't think I would be comfortable using the bulk of our savings account and we don't really want to do it in stages. Right now, we have a 15 year mortgage at 4%- balance is about $89,000. We had our house appraised in 2010 when we refinanced and it was $155,000... should be at least $180,000 now given other house sales in the area and other improvements that we've made (roof, gutters, sewer line, plumbing). I'm hoping this type of job is $30,000 or so, but I could be way off. If the job seems like a good option, does a cash-out refinance make the most sense given how low the rates are?

LillibetteV · June 2016

I guess it would depend on what rate you're able to get and how much longer it would take to pay off the mortgage. I'm SUPER conservative when it comes to home loans and absolutely refuse to take out anything other than a primary mortgage to keep a roof over our head. Wanting to update the house (trust me I know that feeling with my 150 year old house that hasn't had a real update since the 1970s) is not worth it to me. I would personally probably pay for it out of savings as long as I still had enough leftover in the emergency fund at the end of the project.

hoffse · June 2016

I would probably do a HELOC instead of a cash-out refi, unless the rates are significantly better.

I've done the $25K house renovation from cash savings before, and while it's great that we don't have any debt associated with it... I don't think I will do it that way again. We had saved about $30K for our project (so we had a 20% cushion), but I was still VERY stressed out about what would happen if our contractor went over.

If we had that $25-$30K in savings, but also had a HELOC for a similar amount, I wouldn't have been worried at all. HELOCs obviously have ceilings, but you only pay interest on what you draw, and the rate is typically pretty low. I wish we had had one as a back-stop before taking on a project that expensive.

I'm not debt adverse though, and when you are talking about that much money... I would rather borrow some of it (or at least have the ability to borrow some of it) than drain all my savings at once. Our contractor did not go over, so we still only paid about $25K. But when that check cleared, we saw over 80% of our "slush fund" leave our bank account at once. I'm not doing that again.

vlagrl35 · June 2016

hoffse said:

I would probably do a HELOC instead of a cash-out refi, unless the rates are significantly better.

I've done the $25K house renovation from cash savings before, and while it's great that we don't have any debt associated with it... I don't think I will do it that way again. We had saved about $30K for our project (so we had a 20% cushion), but I was still VERY stressed out about what would happen if our contractor went over.

If we had that $25-$30K in savings, but also had a HELOC for a similar amount, I wouldn't have been worried at all. HELOCs obviously have ceilings, but you only pay interest on what you draw, and the rate is typically pretty low. I wish we had had one as a back-stop before taking on a project that expensive.

I'm not debt adverse though, and when you are talking about that much money... I would rather borrow some of it (or at least have the ability to borrow some of it) than drain all my savings at once. Our contractor did not go over, so we still only paid about $25K. But when that check cleared, we saw over 80% of our "slush fund" leave our bank account at once. I'm not doing that again.

eek - that would make me cry.

hoffse · June 2016

vlagrl35 said:

eek - that would make me cry.

I didn't cry, but had to talk myself down a little bit, lol.

It ended up working out fine, and we have rebuilt it. But I spent a couple months worrying about our contractor going over, and then after I paid him I spent a couple months worrying about the balance in our account... I don't think I would be willing to do that again to avoid 4% interest or whatever.

I wish we had financed about half of it and paid out of pocket for half of it. Our savings would have obviously taken a hit, but it wouldn't have been enough to really stress me out. And we wouldn't have been facing a huge amount of debt to pay down either.

julieanne912 · June 2016

This is actually what we are doing right now to install our backyard, and to pay off the debt we have from installing the front yard (which is at 0% right now, but not for forever). With rates being what they are, we did a total refi. The first loan balance is actually not changing at all, but the rate is 3.85 instead of the 4.125 we had before. So, our payment is less there. Our home value has gone up 15% since we purchased in Feb of 2015, so our first loan is now at 75% LTV.

Then, for the "2nd", we're doing a HELOC that's at fixed 3.99% for the first 4 years, then adjustable after that. Most other HELOCs we researched were adjustable rates, which we weren't super comfortable with given the current climate with rates. We plan on paying that HELOC down as much as humanly possible in those first 4 years, and we've got around $1500/month to put towards it since the CC's are being rolled into it. Our mortgage broker also told us that it's very easy to move HELOCs around to different banks. So, if the 4 years is up and we haven't paid it off, and the new rate isn't favorable, we can shop it around to get something we like.

Also the other beauty of HELOCs, is that you can re-use them. So you can pay it down, and then use it again if you want to do another project. Like for us, we want to finish the basement eventually as it'd be a huge value add for our area, but we wouldn't necessarily want to go through another refinance to do it.

In your situation, since you have plenty of equity, a HELOC is a no brainer IMO.

julieanne912 · June 2016

Also forgot to say, you may not even have to pay for an appraisal or anything like that since you have a decent amount of equity to start with. A co-worker had a similar equity spread to you, and she was doing a heloc to do some repairs to her foundation, and they didn't need an appraisal at all.

labro · June 2016

Any thoughts on what siding you want specifically and do you have a guestimate on the approximate square footage you'd need?

I only ask because we looked at re-siding our house this spring and the estimates JUST for the siding were way way beyond my expectations. The lowest was at around $9500 for the cheap, cheap siding, and the highest from the shady contractor was $20,000 for something nicer. We had another quote from another contractor that was around $25,000 for mid-grade siding.

So anyway, with siding plus all the other projects...I'm just wondering if you may want to up your budget a bit?

Personally for this big of a job I'd lean towards a HELOC. We ended up not going forward with our project because even though we had the cash, it just felt too painful to drop it all on the project.

LillibetteV · June 2016

vlagrl35 said: hoffse said: I would probably do a HELOC instead of a cash-out refi, unless the rates are significantly better.
I've done the $25K house renovation from cash savings before, and while it's great that we don't have any debt associated with it... I don't think I will do it that way again. We had saved about $30K for our project (so we had a 20% cushion), but I was still VERY stressed out about what would happen if our contractor went over.
If we had that $25-$30K in savings, but also had a HELOC for a similar amount, I wouldn't have been worried at all. HELOCs obviously have ceilings, but you only pay interest on what you draw, and the rate is typically pretty low. I wish we had had one as a back-stop before taking on a project that expensive.
I'm not debt adverse though, and when you are talking about that much money... I would rather borrow some of it (or at least have the ability to borrow some of it) than drain all my savings at once. Our contractor did not go over, so we still only paid about $25K. But when that check cleared, we saw over 80% of our "slush fund" leave our bank account at once. I'm not doing that again.

eek - that would make me cry.

I cried the first time a huge chunk of cash left my account like that - but it was for the downpayment! I like the idea of using a HELOC as a back-up for a renovation that I could pay in cash just to ease the anxiety.

KAdams767 · June 2016

I would prefer to do a HELOC over a cash-out refinance. I don't think the difference in interest rates between the two is going to be significant enough to make a big difference for you, especially if you intend to aggressively repay the money. And the HELOC offers way more flexibility, IMO. I also think that $30,0000 sounds low for everything you mentioned doing, which is another factor for me. I'd probably get some estimates and do a combination of HELOC and savings to pay for it. Since you have mentioned possibly moving and using the equity in your house for a new DP, I don't know if I'd be comfortable in your position taking such a large portion of the equity out of my home.

hoffse · June 2016

LillibetteV said:

I cried the first time a huge chunk of cash left my account like that - but it was for the downpayment! I like the idea of using a HELOC as a back-up for a renovation that I could pay in cash just to ease the anxiety. Yeah that could have worked too. If we had the HELOC as a back-up, maybe we would have paid the whole thing from our savings like we did, but then we wouldn't have been so worried about overages or rebuilding our savings. I'm not exactly sure which approach we would have taken.

I just know I would have been a lot less stressed with a HELOC available.

The house down payment really hurt too, but I had spent a couple years saving and mentally preparing for it. Also, we closed on our house, and then H started his law firm job less than a month later. So our income doubled at about the same time our savings dropped tremendously. That helped ease the pain a lot.

With our remodel, I just didn't think it through enough. It sounds stupid now, but I felt fine when we signed the contract... and then when we got into the design process and things started to change I got more and more nervous.

We also made the mistake of scheduling the remodel right before we left for France. Our kitchen was demo'd three weeks before we left, it was completed and paid for 1 week before we left, and then I was off in another country hoping we wouldn't encounter any major financial disasters while we were there. We really could have timed everything better.

Live and learn.

als1982 · June 2016

If you have the cash in savings earning little to no interest use that. If you don't have the cash to pay for it and these renovations aren't absolutely necessary for you to safely live in the house or sell it (I think I remember you occasionally talking about that as a possibility), then I'd wait until you do have the cash to complete these projects or do them one at a time.

cbee817 · June 2016

We've already done 3 $15,000 improvements to the house- roof/gutters, our kitchen, and our sewer line from the basement to the street. With the kitchen and sewer, we took 12 months 0% to pay it off in 2010 and 2014 respectively, roof we paid in full in 2012. The issue with waiting is that our house is all wood and built in the 1920's: siding, porch, railings, doors... no matter how much we keep snow off of it in the winter, things are starting to soften and rot.

@labro - We're looking at James Hardie siding, trex for the porch floor and railings, and fiberglass doors that will match our side entrance door that we installed in 2013. Now that I say everything I'm sure I'm underestimating! If we move forward with everything, we'll stay where we are for at least 5 more years, but probably longer. At this time, retirement, 529 plans, vacation funds are all established and on auto-pilot so nothing will be sacrificed there. Also once DD#2 is out of day care in about 15 months, we'll have an extra $1,000/month to throw at paying our mortgage down. We also save at least $1,000/month to general savings and have over $25,000 in there with an extra $30,000 in CDs which could keep us afloat for some time if there is long term job loss or anything. We have the cash.. I just think I would feel better with a loan for some of it like @hoffse said.

DH called this morning- we have someone coming next Thursday night for an estimate on everything.. we'll see what they say and then start to figure out what we're going to do.

Thanks for all of the input everyone!

labro · June 2016

@cbee817 Omg...I didn't even bother getting quotes for Hardie plank. My quotes were for varying degrees of vinyl siding! I guess I would get the quote but be prepared for it to be $$$$$. FWIW I would LOVE to have Hardie plank on my house but I'm not prepared to fork out nearly double the amount that we were quoted for just vinyl. Best of luck! Maybe vendors in your area will do it cheaper!

cbee817 · June 2016

labro said:

@cbee817 Omg...I didn't even bother getting quotes for Hardie plank. My quotes were for varying degrees of vinyl siding! I guess I would get the quote but be prepared for it to be $$$$$. FWIW I would LOVE to have Hardie plank on my house but I'm not prepared to fork out nearly double the amount that we were quoted for just vinyl. Best of luck! Maybe vendors in your area will do it cheaper!

If we can't get the Hardie plank, DH will just keep replacing the old wood siding with new wood siding each summer. So far, the new siding holds up well and will actually absorb paint. The doors and porch floor will have to get done with something more durable.. we have snow at least 6 months of out the year and no matter what we do, the wood just keeps getting worse and worse.

short+sassy · June 2016

I think HELOC's are the best thing since sliced bread. In fact, I would hazard to say that almost anyone who is in a position to be approved for one, should get one. As long as they plan to use the line wisely. Like @KAdams767 mentioned, they are incredibly flexible. If you never withdraw from it, you don't have any payments to make and no interest is accrued. But, if you need it, it's easy money to grab at a very low interest rate.

You can borrow from it and pay it back/pay some back over and over.

Banks are different. Some have an annual fee for HELOCs, some don't. Some charge an appraisal fee to the borrower, some don't. At my bank, the only fee I had to pay was the filing fee that the parish (county) charged. That was a one time fee. There are no annual fees. The bank did an appraisal, but they ate that cost themselves. HELOCs are typically a variable rate, but the rate is usually only slightly higher than whatever the current rate is for buying a home.

I replaced my wood siding with Hardie plank a few years ago. Yes, its more pricy, but it is a wonderful product that I highly recommend. That siding should last my house at least 25 years. It's very sturdy and very easy to paint on.

I'll be honest, I typically use a guy for my repairs who is an insured handyman...but not a contractor. That saves me substantial money then and now. It also allowed me to buy the siding myself. My house is about 2,000 square feet (one story) and I think just the siding materials (not labor) was $1700.

If your husband knows how to replace siding anyway, why don't you all not include that (or have it as a separate line item) and then possibly he can replace it himself. You all could use the savings to upgrade to Hardie.

Cash-out refinance/HELOC/other options?

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