Best Financial Strategy

[klarose]

I have a mortgage for $50,000.

I have to refinance by next Aug.

I also need to put a basement under my house hopefully within 3 years, that will be to the tune of $30,000.

We are starting to save vigorously for the remodel. But realistically we probably won't be able to come up with more than $10,000 in 3 years, if that.

That leaves a gap of $20,000.

I'm not sure what the best way to come up with that much money in 3 years is. Here are my options...

1 When we refinance next year add $20,000 to the loan, and hold onto the extra cash until we finish saving the rest. Making it a 30 year loan with 3% interest.

2 Refinance only our current mortgage, for a 15 year loan at 2.5% interest. Then in 3 years get a HEL for the remaining $20,000 at 6-8%.

I'm not sure which is a better choice.

Option 1, the money would have lower interest. But we'd be paying on it for 30 years. And I hate the thought of paying interest on $20,000 for 3 years that we aren't even using.

Option 2, the interest for the HEL would be more than double. But we could make extra payments on it, and pay it off as fast as possible. Plus our mortgage would be paid off after 15 years at max.


Which will save the most money in the long run?

[LivingAlmostLarge]

Why do you have to refinance? How much your home worth? Why are you doing the basement? Can it be done in parts?

[klarose]

Why do you have to refinance? How much your home worth? Why are you doing the basement? Can it be done in parts?

We have to refinance because Husband has always paid cash and had absolutely NO credit when we bought our house. They wouldn't give us the low interest rates. So they locked us in a temporary loan for 2 years at like 6.5%. Next year our loan just runs out... there is no option of staying on it and I don't know why we would want to. The past 2 years we have been diligently trying to raise husband's credit scores. Then next summer we will refinance down to 2.5-3%

Home is worth at least $80,000 right now. Probably more. We'll have to wait until we get another assessment. We gutted the entire thing, new electric, new plumbing, new roof, new floors, new walls, new insulation, some new windows... Pretty much everything except the studs. It was worth $70,000 when we bought it as a 100 year old farmhouse with plaster walls and 60amp electric. So I'm sure the value has increased quite a bit... Probably closer to $90,000 - $100,000. The land that it is on is priceless... We bought the place for the land with the intention of tearing down the house. But we had an inspector and found out it had good bones, so we saved it.

We have remodeled it completely debt free, by doing most of the work ourselves, and saving for everything and doing it in parts.

We are doing the basement because the current foundation is an old crawlspace. It's nasty, and it's stable for now, but it's not going to last another 50 years. We put a lot of money and time into the house, and if we don't get a new foundation put in all our work will be wasted eventually. Besides my husband is scared of storms. He refuses to have children, until we have a safe basement for them to go into because we do live in a tornado area. One of his best friend's house was destroyed a few years back, luckily they were on vacation so no one was hurt.

The house will actually have to be lifted up, and a basement poured. So no. There is no doing it in parts. I wish we could. That's how we have remodeled the rest of the house debt free.

We talked to the bank about this in the past, and the assessor. They assured us that it would raise the value of our house by as much or as more as we put into the basement. So we don't have to worry about that.

[feh]

Then next summer we will refinance down to 2.5-3%

You shouldn't make this assumption. You have no idea what interest rates will be next year.

[bjl584]

Did you get a quote on how much adding a basement will cost? What you are talking about doing is major. A relative of mine wanted to do the same thing, and he couldn't even find a contractor that was willing to tackle the job. It actually might be cheaper and easier to just start over and buy or build another house.

[jIM_Ohio]

Is your current house a mortgage or a land contract?
What is your income
What are your expenses?
How serious are you about achieving goals?
Why would you not sell the house and buy one with a basement?

[klarose]

Did you get a quote on how much adding a basement will cost? What you are talking about doing is major. A relative of mine wanted to do the same thing, and he couldn't even find a contractor that was willing to tackle the job. It actually might be cheaper and easier to just start over and buy or build another house.

Two of our close friends have done this. It's actually pretty common around here... But expensive. We do have a contractor who will do it. He was suppose to come out and give us a quote, but he got busy and hasn't yet. He warned us it would probably be around $25,000. So we are figuring more likely at least $30,000.

We love our land too much to move, and we already knew this cost when we bought the place. Even with $30,000+ going into the basement. We will come out with a very nice house, much cheaper than we could have built or purchased. It would have been easier to buy new yes... But we are young, and it was worth the work to us.

[klarose]

You shouldn't make this assumption. You have no idea what interest rates will be next year.

True. But I'm pretty confident it will be much cheaper than the 6.5% we are paying now.

[klarose]

Is your current house a mortgage or a land contract?
What is your income
What are your expenses?
How serious are you about achieving goals?
Why would you not sell the house and buy one with a basement?

We have a $50,000 mortgage on our house.

Income is about $35,000 a year gross.

We have no debt besides mortgage.

We are serious about achieving goals. I think we've done pretty well for someone our age. We both paid cash for our cars. I own about $10,000 in livestock. We've remodeled a large home debt free. We own 5 acres with two barns, and 2 sheds. I'm about to graduate school debt free.

I'm the girl who paid about over $3,000 for a horse, a horse trailer, and all the gear with money I had saved as a kid, when I was 12 years old. Not many preteens could say they have saved that much.

You can read my last post about why not selling, so I don't have to retype it. lol

[jIM_Ohio]

We have a $50,000 mortgage on our house.

Income is about $35,000 a year gross.

We have no debt besides mortgage.

We are serious about achieving goals. I think we've done pretty well for someone our age. We both paid cash for our cars. I own about $10,000 in livestock. We've remodeled a large home debt free. We own 5 acres with two barns, and 2 sheds. I'm about to graduate school debt free.

I'm the girl who paid about over $3,000 for a horse, a horse trailer, and all the gear with money I had saved as a kid, when I was 12 years old. Not many preteens could say they have saved that much.

You can read my last post about why not selling, so I don't have to retype it. lol

What conditions exist on mortgage which require the refinance? Is it a balloon or something else?

[klarose]

What conditions exist on mortgage which require the refinance? Is it a balloon or something else?

I honestly don't know. They just told us we have to within 2 years. I didn't ask questions, I just wanted to get down to a better interest rate ASAP. I know my payment book just runs out.

But it doesn't really matter to me. Why wouldn't we refinance?

[jIM_Ohio]

I honestly don't know. They just told us we have to within 2 years. I didn't ask questions, I just wanted to get down to a better interest rate ASAP. I know my payment book just runs out.

But it doesn't really matter to me. Why wouldn't we refinance?

Ignorance will cost you, so I suggest making sure you are aware of the fine print. Do they want you to refinance, or do you have to? Will they foreclose on property, or do you lose other rights the 25th month. You may need to negotiate, so I would arm yourself with knowledge.

[LivingAlmostLarge]

Agreed with Jim. I don't understand why people don't bother to read the fine print of everything. Refi necessary or choice? Any problems with refinancing early? Penalty?