Question for you financial wizards...

[Mizzou211]

I have well over $150K in equity in my home right now. There are a few large ticket items I'd like to get done such as replacing my A/C units and furnaces, some window replacements, paint, etc. Possibly also start construction on my outbuilding. I can't do the BBC preferred method of paying cash for everything...so I have a few questions.

Which is preferable and why? 2nd mortgage or HELOC? I'm sure there are pros and cons to both, so what are they? Are there other options to consider to utilize some of my equity?

Any and all thoughts / advice are appreciated.

[Almag6]

HELOC is a 2nd mortgage

[1stindoor]

What Almag6 said. When we did ours (about 8 years ago), we only took out enough to do what we needed to do to avoid the temptation. We also went through the bank that held our note as it saved us considerable time and energy and other fees. Funny thing is now we owe less on the house than we do on the HELOC. The house will be paid off in Oct. The HELOC probably in Jan.

[Dixie-Raven]

Save money until you have enough to do a project at a time.

[Moose720]

HELOC will have a Prime + a point or two for the interest rates. So you have that variable in the future. You can do a cash out Refi in one lump sum and lock in a rate and now what your payment will be for the life of the loan. Down fall to that is you must know how much you are going to need to borrow. Remember that cash out or HELOC loans typically have a 70%-80% loan to value ratio. So lets say your home if appraised at $200k and you owe $50k on it. 75% of the 200k is $150k but you must subtract the $50k that you still owe on it. SO you could borrow up to $100k. PM for more details you would like.

[WMFisher]

The main difference is whether want to take all the cash at once, and get setup with a 2nd mortgage with fixed payments, or get a HELOC, which is like a credit card, with a limit to a certain amount, and an interest rate for the amount outstanding. The 2nd mortage will give you fixed monthly payments, whereas the HELOC your payment is based on what you currently owe.

Figure out which suits your needs. HELOC rates are typically variable, and they will set your limit as 80% appraised value minus your 1st mortgage balance. I.E. 500k house, 80% is 400k, you have 150k in equity, or your 1st mortgage is 350k, so they will have an 80% HELOC of 50k. Some will let you go up to 90% Loan to Value, but the interest rate is higher because its more risky for the bank. Hope that helps a bit.

[jigman51]

HELOC will have a Prime + a point or two for the interest rates. So you have that variable in the future. You can do a cash out Refi in one lump sum and lock in a rate and now what your payment will be for the life of the loan. Down fall to that is you must know how much you are going to need to borrow. Remember that cash out or HELOC loans typically have a 70%-80% loan to value ratio. So lets say your home if appraised at $200k and you owe $50k on it. 75% of the 200k is $150k but you must subtract the $50k that you still owe on it. SO you could borrow up to $100k. PM for more details you would like.

This. I personally would avoid it unless it was some type of emergency.

[billspence]

Even though there isn't anywhere near enough information to give you a good answer, you will get plenty of them, but...

The best financial advice you can get from strangers on the internet is to not take financial advice from strangers on the internet.

[keeferfish]

The best financial advice you can get from strangers on the internet is to not take financial advice from strangers on the internet.

Sell it and buy something nice!

[mactlman]

do it now on a loan, with all the inflation dollars coming it will cost you less overtime. inflation is how the feds get out of debt and you can use it also on big ticket items

[D_Wade85]

Paying for your home twice is the American way!!!

Mamma wants some cold air, granite countertops for the kitchen and a bathroom remodel. Papa needs that out building because he works hard, deserves it, and needs a retreat from Mamas nagging! Can’t afford to maintain our investment, so let’s dive on in and pay for it twice over! If it all goes south the bank can take the house, but Mamma and Papa still have their love for one another!

Merica Baby!!! The only way to fix a money shortage in the household is to borrow more money! The borrower is slave to the lender, but saving money just isn’t sexy enough. We all need to make the neighbors think we’re doing better than we actually are.

So dive on in and take the plunge, your no different than any other blue blooded American. And you can take that to the bank!

[BP in ME]

We used a HELOC to replace the roof and redo a kitchen that was 40 years overdue. We got our money back at selling time even in a soft market but we were disciplined about repaying the loan. Adding outbuildings is generally not a good way to build equity but if you view it as an investment in your happiness then only you can put a value on it (just like a bass boat)

[RJR]

Paying for your home twice is the American way!!!

Mamma wants some cold air, granite countertops for the kitchen and a bathroom remodel. Papa needs that out building because he works hard, deserves it, and needs a retreat from Mamas nagging! Can’t afford to maintain our investment, so let’s dive on in and pay for it twice over! If it all goes south the bank can take the house, but Mamma and Papa still have their love for one another!

Merica Baby!!! The only way to fix a money shortage in the household is to borrow more money! The borrower is slave to the lender, but saving money just isn’t sexy enough. We all need to make the neighbors think we’re doing better than we actually are.

So dive on in and take the plunge, your no different than any other blue blooded American. And you can take that to the bank!

a lot of truth here

[NAMVET1968]

Paying for your home twice is the American way!!!

Mamma wants some cold air, granite countertops for the kitchen and a bathroom remodel. Papa needs that out building because he works hard, deserves it, and needs a retreat from Mamas nagging! Can’t afford to maintain our investment, so let’s dive on in and pay for it twice over! If it all goes south the bank can take the house, but Mamma and Papa still have their love for one another!

Merica Baby!!! The only way to fix a money shortage in the household is to borrow more money! The borrower is slave to the lender, but saving money just isn’t sexy enough. We all need to make the neighbors think we’re doing better than we actually are.

So dive on in and take the plunge, your no different than any other blue blooded American. And you can take that to the bank!

I am not the only one that listens to DAVE RAMSEY !SOUND ADVICE

[dawg1419]

I am not the only one that listens to DAVE RAMSEY !SOUND ADVICE

The OP really needs to listen to Dave and don’t go down that rabbit hole.

To the OP. DON’T DO IT.

[old4runner]

There would not be a boat dealer able to stay open if everyone listened to David Ramsey... Not a one.

Some also believe "He who dies with the most debt wins" and that is kinda hard to argue with.

[Duece22]

Is there anything wrong with current HVAC system and windows? If nothing is wrong, why upgrade? Paint is pretty cheap to do room by room as money is available.

We did a cash out refi in 2020, we were able to pull cash out to finish a few projects, reduce years on loan, and reduce monthly payment due to interest rates. With rates now, it's not the best time to pull money out.

[Bill2e]

First off every situation is different.

what is your current interest rate?

if it is better than the market rate a HELOC is the way to go.

I just did a HELOC for $150K to buy a piece of property.

no closing cost, excellent rate and didn’t mess with my 2.5% current interest rate.

our home is valued at $500K and our 1st mortgage is low. We have already paid back $50K and will have the HELOC paid with in a year. Completely made sense for us.

Every situation is different, but go for it if that’s what you want. Stilll much cheaper than selling and buying a new home.

[barkleyhawggitter]

Save money until you have enough to do a project at a time.

This, don't borrow against your home.

[20DC BULLET]

Save money until you have enough to do a project at a time.

Words of wisdom......