Open a HELOC or add to Mortgage?

kobe008 · #1 (**permalink**) 04-20-2009, 12:37 PM

Bought our home for 123k about 5 years ago and currently owe just over 113k on a 30 yr loan at 6%. We are refinancing for 30 yrs at 4.62% and since I work at the bank we do not have to pay the origination fee of 1% so that is a bonus. Our house desperatly needs new siding on it and my question is whether I should add the cost of the siding into the mortgage or should I open a HELOC and take the money out of there? Our appraisal came out to 152k which I was surprised it was that high. If we do increase our mortgage the most we could get is 121k so we would have about 8k extra to do our siding with which might not even be enough. So the question is it better to add to the mortgage or get the extra funds thru a HELOC?

disneysteve · #2 (**permalink**) 04-20-2009, 01:38 PM

Assume that you weren't refinancing. Would you take a 30-year loan to put siding on your house? I'm guessing you wouldn't, so why would you want to roll that into your mortgage?

Run the numbers. Use an online calculator (check at bankrate.com) to compare the total cost each way. Even though the rate is lower on the mortgage than on the HELOC, since you'd be paying for many more years on the mortgage, it could end up costing you more in the end.

watsoninc · #3 (**permalink**) 04-21-2009, 07:41 AM

Is there any way you could cash flow this repair instead?

It would be sad only to owe only $2K less on your mortgage than you started with about 5 years ago (i.e. $121K vs. $123K). Essentially, that's about 5 years down the drain. Additionally, putting debt on your house in the form of a HELOC for siding would slow your financial progress (beyond paying cash) as well. Personally, I wouldn't do either, but I'm pretty conservative I guess.

unsecuredmoneygroup · #4 (**permalink**) 04-21-2009, 01:12 PM

The thing about equity lines is that they're being handed out less and less as the economic situation turns. Most people who currently have an equity line have had their limits slashed to their current balance.

So when it comes to your siding, I'd say if your refi won't cover it, then it can wait for fairer winds.

swanson719 · #5 (**permalink**) 04-21-2009, 04:37 PM

Figure in the interest cost difference and how long it will truly take you to pay off that extra $8K. That's a heck of a lot more than $8,000 to cover it. Definitely find another way than putting it into a mortgage.

kobe008 · #6 (**permalink**) 04-22-2009, 10:12 AM

Thanks for all the replies. We decided to NOT put the extra cost of the siding into the new mortgage. The only bad thing now is that since our siding is shot now they are requiring us to put the money for the siding into an escrow account and it will be paid for out of it. I'm able to borrow the money for the siding from my parents and then I can find a way to pay them back. Also I'm not for certain if what my bank offers is a HELOC or just a Home Equity Loan.

disneysteve · #7 (**permalink**) 04-22-2009, 10:19 AM

Quote:

Originally Posted by kobe008

We decided to NOT put the extra cost of the siding into the new mortgage. The only bad thing now is that since our siding is shot now they are requiring us to put the money for the siding into an escrow account and it will be paid for out of it.

Who is "they"? The bank? Why does the bank even know that you are considering replacing your siding? That's none of their business. As long as you qualify for the refi, that's all that should matter. I don't believe they can dictate how you spend your money beyond that.

MonkeyMama · #8 (**permalink**) 04-22-2009, 02:34 PM

I just had to add if it were me I would put it on the mortgage and then pay it off rapidly. It's hard to beat the interest rate and there is no law saying you must take 30 years to pay it off.

Doesn't help in your case, but I wouldn't overlook the option just because of the 30 year term.

kobe008 · #9 (**permalink**) 04-23-2009, 01:58 PM

Quote:

Originally Posted by disneysteve

Who is "they"? The bank? Why does the bank even know that you are considering replacing your siding? That's none of their business. As long as you qualify for the refi, that's all that should matter. I don't believe they can dictate how you spend your money beyond that.

The reason is because our appraisal was done with the assumption we had brand new siding. Our current siding is really bad and falling off in some spots. The person who reported our appraisal to the bank said the siding was shot so I told them we were getting it replaced so the appraiser took that into consideration when putting a value to our house. Because of that the bank wants the funds for the siding put into escrow and then paid out of there.

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