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Home Equity question/direction


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Hello - can i get a home equity loan on a fixed rate?

 

Was told all home equity loans are now variable rates or interest only.

 

Financial arm recommended i refi my remaining principle and roll the new loan into it.

 

Have plenty of equity in my home and figured for a kitchen upgrade i would take out a home equity loan rather than a personal loan.

 

Thoughts or direction would be appreciated

 

thanks

 

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17 hours ago, NYSPORTS said:

Hello - can i get a home equity loan on a fixed rate?

 

Was told all home equity loans are now variable rates or interest only.

 

Financial arm recommended i refi my remaining principle and roll the new loan into it.

 

Have plenty of equity in my home and figured for a kitchen upgrade i would take out a home equity loan rather than a personal loan.

 

Thoughts or direction would be appreciated

 

thanks

 

Yes you can get a fixed rate home equity loan.  I did a google search and plenty of options pulled up.  Most require LTVs under 80% (including first mortgage).  I would not do a full refi unless you can significantly lower your first mortgage rate as typically the closing costs on a refi are higher than on a HEL.  Don't add complexity if there isn't a benefit.

 

Also note that a home equity loan is different than a home equity line of credit (HELOC), which are almost always variable rates.

 

If you have the equity much better to use a secured loan for home improvements rather than a personal loan as the interest will be more than likely tax deductible (obviously verify).

 

 

Edited by CTSoxFan
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A HELOC and a home equity loan are two different products.  

 

HELOCs generally have variable rates (although many also offer a feature where you can get a fixed rate on a specific draw, if desired).  

 

Home equity loans are commonly fixed-rate.

 

Is the kitchen upgrade for cosmetic purposes, or is your kitchen completely unusable?  Assuming this is discretionary:

 

I would only pay cash (save up for a while if necessary) for cosmetic home upgrades.  It's unlikely that you'll ever recoup the upfront costs, much less the interest you'll pay on top of that.  

 

Put another way, I'd only fund a discretionary purchase like this with discretionary income.

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2 hours ago, cv91915 said:

Is the kitchen upgrade for cosmetic purposes, or is your kitchen completely unusable?  Assuming this is discretionary:

 

I would only pay cash (save up for a while if necessary) for cosmetic home upgrades.  It's unlikely that you'll ever recoup the upfront costs, much less the interest you'll pay on top of that.  

 

Put another way, I'd only fund a discretionary purchase like this with discretionary income.

I disagree with you here.  While you won't recoup all your expenses on a kitchen upgrade/remodel, it generally provides the best ROI (50-70% of initial investment) of any major house upgrade.  Additionally, having an upgraded kitchen is a significant plus/improvement to curb appeal, assuming they would be selling anytime soon.  Without knowing their lifestyle it is hard to say how much of the upgrade is functional vs. cosmetic, but I know for me one of the biggest priorities in our new house was getting the kitchen exactly how we wanted it, and I would not be happy with a subpar kitchen.

 

As far as the financing, I would absolutely take advantage of the low rates vs. saving cash to pay for it (or paying cash today).  You can get HELs under 2.5%, and given the tax savings that makes the effective rate less than 2%.  You should easily be able to garner a return on your funds that is above that rate without a significant level of risk. 

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2 hours ago, CTSoxFan said:

I disagree with you here.  While you won't recoup all your expenses on a kitchen upgrade/remodel, it generally provides the best ROI (50-70% of initial investment) of any major house upgrade.  Additionally, having an upgraded kitchen is a significant plus/improvement to curb appeal, assuming they would be selling anytime soon.  Without knowing their lifestyle it is hard to say how much of the upgrade is functional vs. cosmetic, but I know for me one of the biggest priorities in our new house was getting the kitchen exactly how we wanted it, and I would not be happy with a subpar kitchen.

 

As far as the financing, I would absolutely take advantage of the low rates vs. saving cash to pay for it (or paying cash today).  You can get HELs under 2.5%, and given the tax savings that makes the effective rate less than 2%.  You should easily be able to garner a return on your funds that is above that rate without a significant level of risk. 

Borrowing money for a discretionary purchase that instantly loses 30-50% of its value is a generally going to be considered a bad financial decision.

 

I do "wasteful" things purely for enjoyment all the time, but I'm certainly not putting a second lien on our home to fuel a lifestyle.

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3 hours ago, cv91915 said:

Borrowing money for a discretionary purchase that instantly loses 30-50% of its value is a generally going to be considered a bad financial decision.

 

I do "wasteful" things purely for enjoyment all the time, but I'm certainly not putting a second lien on our home to fuel a lifestyle.

Borrowing money at a lower cost of money than the return one can earn is generally good financial practice, and in my opinion is a better option in this scenario.

 

I also wouldn't consider improving an appreciating* asset "wasteful" but we can agree to disagree there.  How it is paid for is irrelevant.  I certainly would rather have a $XX,000 HEL at effectively 2% and take the risk that that same cash invested can outperform that.

 

But, CV and my biases aside OP I think to sum up your question.  Yes you can get a fixed home equity loan.  Yes it will likely be a much better option than a personal loan (lower rate and likely tax deductible).  Some HELOCs offer a fixed component, but unless you need a revolving line I wouldn't go this route.  I would not do a full refi unless you can save significantly on the rate on your first mortgage.

 

As far as whether you should or not, I don't know enough about your situation to make a fair assessment.

 

*Yes I understand the values of homes can go down but in most cases they appreciate in the long term.

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