Financing minor home remodeling in 2018
March 2, 2018 5:39 AM Subscribe
We're undertaking a relatively (as these things go) basic kitchen renovation. How to money?
It will probably cost around $25k when it's all said and done. I plan on paying some with cash, but doing the whole thing that way would deplete our savings to a degree I'm not comfortable with. We have excellent credit and plenty of equity in our house (which we bought for a song a year and a half ago knowing it needed cosmetic work like this). The bank I have all our accounts with also holds our mortgage (which is a normal fixed rate 30 year). Aside from our mortgage, our only other debt is a very small student loan. We have plenty of disposable income, but that's kind of a new situation for us in the last 3 years or so (we've both gotten promotions and raises) and I'm still adjusting my mental models.
I'm extremely risk averse and conservative with money. Money is also an anxiety trigger, so I'm quietly freaking out, even though this is a thing that I know people do all the time.
So, how do responsible people finance home improvements these days?
It will probably cost around $25k when it's all said and done. I plan on paying some with cash, but doing the whole thing that way would deplete our savings to a degree I'm not comfortable with. We have excellent credit and plenty of equity in our house (which we bought for a song a year and a half ago knowing it needed cosmetic work like this). The bank I have all our accounts with also holds our mortgage (which is a normal fixed rate 30 year). Aside from our mortgage, our only other debt is a very small student loan. We have plenty of disposable income, but that's kind of a new situation for us in the last 3 years or so (we've both gotten promotions and raises) and I'm still adjusting my mental models.
I'm extremely risk averse and conservative with money. Money is also an anxiety trigger, so I'm quietly freaking out, even though this is a thing that I know people do all the time.
So, how do responsible people finance home improvements these days?
Response by poster: Followup question: is there an advantage to HELOC over a straight home equity loan or vice-versa?
posted by soren_lorensen at 6:09 AM on March 2, 2018
posted by soren_lorensen at 6:09 AM on March 2, 2018
Look at Digital Federal Credit Union at dcu.org. We just got a HELOC from them, they have some of the lowest rates around.
HELOC is a line of credit, like a credit card you can draw from/pay back multiple times over the life of the line. These lines usually have a variable interest rate. Equity loan you borrow a set amount once and repay a fixed amount per month, like your mortgage. These loans usually have a fixed rate, although variable ones are possible.
I like having a HELOC as an extra emergency source of funds. I don't mind the variable interest rate because I know that I can quickly repay anything I take out.
posted by medusa at 6:26 AM on March 2, 2018 [2 favorites]
HELOC is a line of credit, like a credit card you can draw from/pay back multiple times over the life of the line. These lines usually have a variable interest rate. Equity loan you borrow a set amount once and repay a fixed amount per month, like your mortgage. These loans usually have a fixed rate, although variable ones are possible.
I like having a HELOC as an extra emergency source of funds. I don't mind the variable interest rate because I know that I can quickly repay anything I take out.
posted by medusa at 6:26 AM on March 2, 2018 [2 favorites]
In theory you could open a HELOC and not draw in it while spending your savings on the reno, meaning you're not actually paying the interest on the money and you have the HELOC as an emergency fund.
In practice this may not be a good idea, because of the adage of bankers giving you an umbrella when it's sunny and taking it away when it rains.
posted by doomsey at 6:28 AM on March 2, 2018 [2 favorites]
In practice this may not be a good idea, because of the adage of bankers giving you an umbrella when it's sunny and taking it away when it rains.
posted by doomsey at 6:28 AM on March 2, 2018 [2 favorites]
Also, most HELOCs allow you to fix rate any portion of it, if you'd like. For instance, say you take out a $40K HELOC. You end up spending $28K on the reno. If you so desire you can lock that $28K into a fixed rate option, which you'll pay on just like a normal loan in a set time period with fixed monthly payments. The extra $12K still remains a revolving line you can draw on when needed. You can even have multiple fixed rate options on one HELOC.
posted by bologna on wry at 7:00 AM on March 2, 2018 [2 favorites]
posted by bologna on wry at 7:00 AM on March 2, 2018 [2 favorites]
We just did this with a home equity line of credit and it honestly feels like free money because of how much our house had appreciated in value since we originally bought it. We actually rolled higher interest debt into the deal, so we paid off all our other loans and our monthly mortgage payment went up by $200 (much lower amount than what we were paying for all our other school loans totaled). If we were to sell the house tomorrow, we'd still be ahead because the renovations are increasing the value of the house even more.
posted by LKWorking at 7:56 AM on March 2, 2018 [2 favorites]
posted by LKWorking at 7:56 AM on March 2, 2018 [2 favorites]
An additional wrinkle re: home equity loans/HELOCs, if you're in the US. I believe the new tax law specifies that interest paid on home equity loans/HELOCs is deductible only if the money is actually used on home improvement. Not sure how that's demonstrated or enforced, but may be worth thinking about as part of the larger picture. Not a tax professional by any stretch so I encourage you to dig deeper if this is of interest.
posted by Sublimity at 8:07 AM on March 2, 2018
posted by Sublimity at 8:07 AM on March 2, 2018
If you think you can pay it off relatively quickly, you could also look around for a 0% credit card, I've seen 18-24 month 0% intro rate offers floating around lately.
posted by rabbitrabbit at 8:50 AM on March 2, 2018 [1 favorite]
posted by rabbitrabbit at 8:50 AM on March 2, 2018 [1 favorite]
I too am extremely conservative about money. When we put an addition on our house, we took out a HELOC which offered a variable rate that was (and remained) below prime. Equity loans at that time had a higher interest rate. Mr. DrGail and I agreed to put every extra dollar, that would ordinarily go into savings, into paying down the HELOC. While the HELOC money was still available, we used it to purchase cars when needed and, finally, put the remaining bit of our mortgage principal on it because the interest rate was lower even than our mortgage. Of course, that was when HELOC interest was deductible; I'm not sure where that stands now.
posted by DrGail at 9:29 AM on March 2, 2018 [1 favorite]
posted by DrGail at 9:29 AM on March 2, 2018 [1 favorite]
We used a HELOC at our last house, from our credit union, and it worked really well for remodeling expenses. It seemed a lot more flexible than a set loan and rates were low. We didn’t use it for other debt so I can’t speak to how that would work.
posted by Dip Flash at 10:46 AM on March 2, 2018
posted by Dip Flash at 10:46 AM on March 2, 2018
How long would it take you to save $25k in cash on top of your existing savings? Can you do this in 12 months if you set up a dedicated kitchen savings account and save aggresively with your new disposable income? 24 months? 36? If so, can the kitchen wait that long until you have cash on hand on top of your savings buffer?
posted by slateyness at 3:37 PM on March 2, 2018 [2 favorites]
posted by slateyness at 3:37 PM on March 2, 2018 [2 favorites]
Yeah, seconding slateyness, if you're really anxious about money just live with a dubious kitchen and save the cash. Things to do with the time:
1) think about your reno plans with a practical and thrifty mind; nothing should stay in the plan that hasn't been on it for a couple years. You will recover from trends.
2) keep an ear out for the good kitchen contractors who will read your plan, tell you if the budget is reasonable, and stick to it if possible. They will likely be booked a year in advance. No longer a problem for you!
3) Enjoy doing weird shit to your temporary kitchen while you think about what you want. I made an instrumented proofing cabinet out of a standard one and we tried weird shape specialty cabinets made out of heavy cardboard and, honestly, I kind of miss the really intense short-term paint color, even though nothing would ever "go with" it.
posted by clew at 10:55 PM on March 3, 2018
1) think about your reno plans with a practical and thrifty mind; nothing should stay in the plan that hasn't been on it for a couple years. You will recover from trends.
2) keep an ear out for the good kitchen contractors who will read your plan, tell you if the budget is reasonable, and stick to it if possible. They will likely be booked a year in advance. No longer a problem for you!
3) Enjoy doing weird shit to your temporary kitchen while you think about what you want. I made an instrumented proofing cabinet out of a standard one and we tried weird shape specialty cabinets made out of heavy cardboard and, honestly, I kind of miss the really intense short-term paint color, even though nothing would ever "go with" it.
posted by clew at 10:55 PM on March 3, 2018
You know what, I wrote "home equity line of credit" but that's not what I meant. We did a cash-out refinance for the amount of money we needed for the remodel and to pay off the larger interest loans. Thought I should clarify since you were trying to figure out the pluses and minuses of options and I basically sold the wrong side! Anyway, cash out refi for the win (in my experience).
posted by LKWorking at 9:37 AM on March 6, 2018
posted by LKWorking at 9:37 AM on March 6, 2018
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