Line of Credit vs. Loan?

[Scanner]

Well, my wife has finally gotten to me. We have a substantial amount of wealth locked up into our house and she wants to do some improvements (remember the painting thread?). She says she's tired of waiting. She wants hardwood floors, paint, some furniture, a deck, and maybe an above ground pool.

I am guessing we need $20,000, maybe $30,000 by the time we are done.

To give you a breakdown, here is our financial position (I am glad this is anonymous forum)

ASSETS:
House: $361,000 as per zillow.com
Retirement portfolio: $60,000
College: $15,000 (2 boys, 9 and 4)

LIABILITIES
Car Loan: $2400 (paid thru business, which is a sole proprietorship) 4 year loan @ 4%
Mortgage: $141,000 (22 year left @ 6.125%, maybe a little less time left since we do bimonthly payments)
Business LOC, unsecured, 5 year revolving, just refinanced last year: $8900 balance @ 10.25%

So last night, she talked me into tapping our home equity.

I did a search on e-loan this morning and I found what I thought was a curiousity - lines of credit have a cheaper interest rate than loans, by almost a percent.

I was already planning on taking out a loan then sticking it in a balanced fund, refunding any potential loss (a fund like Vanguard Wellesley or the mirro Price fund) to get the lower interest rate.

Anyway, it appears a HELOC would be a better route to go because it's interest rates are actually lower, except I suppose the interest rate is variable and could probably rise.

So the question is, do I go with the variability of a LOC or take a fixed loan, at a higher rate, have the money sit in a fund to offset some of that interest rate (even a muni bond fund) as we are making improvements, refund any losses to said fund if there is a loss, and pay down the loan as we go along.

BTW, I still want to paint myself!!!! It's the priniciple of the matter and I'll get her to concede that point.

As far as how we ended up with so much paper worth and not enough discretionary liquid assets, I'm still scratching my head on that one too. I didn't plan it this way.

As they say, "Man plans and God laughs."

Well, I know this is a saving forum, not a borrowing forum, but any direction is appreciated nonetheless.

[simpleyme]

hmm are rates on helocs any good right now? they are 9.24 at my bank right now plus 50 dollars a year fee

[Scanner]

Eloan quoted me 7.49% on a HELOC and 8.75% on fixed 15 year with 0 points for $25,000.

[zetta]

I think what you need to look at is how much you can afford to pay back each month, and so how long it will take you to pay back the money. Then think about how likely interest rates are to rise over that time period. For instance, I'd probably be willing to risk the LOC over a 3 year period, but would go with the fixed loan over a 10 year period. In the middle is tough to say, and might depend on how often and how high the LOC can adjust.

[Ima saver]

Do you have an emergency fund? I would not take on a large loan without an emergency fund.

[simpleyme]

Originally Posted by Scanner

As far as how we ended up with so much paper worth and not enough discretionary liquid assets, I'm still scratching my head on that one too. I didn't plan it this way.


.

I have thought about that line of your post ;-) when I finally quit borrowing money is when I started getting liquid assets


you have heard this old line havn't you .....what do you have when you no longer have payments? money!

[Ima saver]

that is so true!!

[zetta]

I occasionally think about taking out a home equity loan as well. We'd like to put in a larger front patio, resod the front lawn, and put pavers or poured concrete on the sides of the house. Altogether about $15k - $20k of work. They wouldn't add much value to the house, but would enhance our pleasure in living here.

The options seem to be 1) sell off investments, 2) wait until I go back to work, or 3) take out a loan. At 7.5%, we'd be looking at $240/mo over 10 years, or $400/mo over 5 years. I'm just adverse to being obligated to a large payment for so long, but also adverse to selling off (non-retirement) investments, so for now we just continue to wait. The side yards especially bug DH, so we might think about doing smaller pieces in stages if we can save up $5k at a time.

[scfr]

What about figuring out what your monthly loan payment would be, sticking that amount in a high-yield MMA each month, and then paying cash for everything as you have enough saved?

[zetta]

Saving up for the "big wants" is our biggest budgeting downfall. Funny, we have no problem putting aside money for the big needs (like property tax) and not touching money that has been invested, but when it comes to making tradeoffs between the daily wants and the big wants it is a struggle.

The plan to save the equivalent of a loan payment each month until we can pay cash is a good one. In practice, though, it would take 5-10 years to save enough for the project, and I most likely will have returned to work before then. The second income would bring in enough to do the project in 6-8 months, even if I work part-time.

[Scanner]

Do you have an emergency fund? I would not take on a large loan without an emergency fund.

We have about $9000 sitting in our checking right now. . .I'll admit, thats probably about 2 months though. Another reason for the HELOC, I thought.

have thought about that line of your post ;-) when I finally quit borrowing money is when I started getting liquid assets


you have heard this old line havn't you .....what do you have when you no longer have payments? money!

Dowwlllll! That was a bit preachy but I would be lying if that wasn't dead-on accurate.

I don't know. . .I am conflicted.

I am a male so bear with me here as I share my thoughts on living with a female in marriage.

Given our druthers, sure, I wouldn't mind living with all white walls, $4 window blinds, marginal carpet and one painting on the wall with a nail holding it up. We shop at Walmart/Tar-shay.

But I have learned over the years, much of female's happiness comes from their house. I guess it's a cultural thing - girls had dollhouses growing up that they decorated and had pretend marriages to Ken. They really dig this stuff.

Only they didn't grow up and marry Ken who drove a pink sports car. . .they married me.

For years, we have lived it my way - just getting the minimums, living frugally. . .by that we've built up some wealth. Again, how it ended up in our house, I'm not sure. I didn't plan it that way. We certainly needed to borrow to get the house and get our net worth rolling.

So, the wife is 38 going on 39 and she wants some things. I don't want for anything and I couldn't be more different than her in that regard but I can't fault her.

I don't know what to say. I'm kind of with the forum - there appears to be many areas we could "shore up" - college, retirement, emergency funding but I think the wife wants these "things" first. I've learned to respect her intuition on things - we get these things and it has a way of working out.

I am not talking tapping more than 10% of our equity here but I'll admit, there's a little risk.

[simpleyme]

boy I sure understand wanting to make the wife happy;-)
My DH has kept me happy by constantly working on something ,meaning the house has slowly gotten fixed all the time ,but I have also lived in a construction zone for the last 5 years LOL not too fun I must admit

but good news is we have done a complete remodel (including a brand new kitchen )with no debt at all and we are on track to having our home paid off in 4 more years ;-)

it would be nice to get everything done at once like what you are going to do ;-)

[Hot dog]

You know I bet she would be happy if she just saw some progress and take one improvement at a time. 1st start on the painting just seeing that will make her feel good. Couple months later new floors. Then one room at a time save for funiture. You could do it in stages and save and plan for each.

[scfr]

Scanner - Saw this and immediately thought of you!
Enter to win a $20,000 Room Makeover from Domino Magazine (no purchase necessary):
https://w1.buysub.com/pubs/N3/DNO/pk...s_mag_code=DNO

[thekid]

Originally Posted by scfr

Scanner - Saw this and immediately thought of you!
Enter to win a $20,000 Room Makeover from Domino Magazine (no purchase necessary):
https://w1.buysub.com/pubs/N3/DNO/pk...s_mag_code=DNO

Scanner wants a house makeover, not just a room makeover. He won't be interested in 20 000$ just for one room.

[scfr]

Originally Posted by thekid

Scanner wants a house makeover, not just a room makeover. He won't be interested in 20 000$ just for one room.

But I'll bet it would sure make his wife happy ... And buy him some time to put off those other renovations!