Line of credit or loan (based on home equity)

[Zeke]

I just did a search here on this and I can't believe this hasn't been discussed ad infinitum. Which is the bast path and how to handle the repayment? Personally, I prefer a fixed payment amount on a fixed interest. The problem is I don't know how much I need. I just want to tidy up a few unfinished remodeling projects in the event I have to bail (which seems very likely). I've got plenty of equity left even as it decreases daily ($50K so far this year). None of the timing is set, if I could make it here another 3-4 years, that would be great.

But, there's no work. So, I might as well employ myself to get things in order. I haven't written an estimate as a result of advertising in 4 months. I do get some spill over work from referrals as I do pretty nice work. But, I'm reduced to doing handyman work now after a fairly illustrious career as a master carpenter. I'm just not that interested in pursuing this kind of life. Shoulda gotten out years ago. I was having too much fun, I guess.

Sorry for the mini rant, let's talk loans.

[Flatbutt1]

As a very quick tangent...please do let me know if you succeed in actually getting a contractor to show up. I'm ready to do the equity loan as I'm going to be here at least 10 more years. But I can't get a GC!

[Zeke]

I guess you missed a few of my posts. I am a contractor, have been for 37 years, and I have always shown up and never abandoned anything, even if I was in the hole on the job.

37 seven years of being a decent, trustworthy and talented worker has brought me to this juncture. Frankly, I could give a ***** whether any contractor shows up or not. There has been no loyalty to me for the 1000's of times I pulled through.

I can see where this thread is going. I'll find another site to discuss loans.

[VaSteve]

When I don't know how much it will cost, I get a line of credit. Once the project is done, convert it to a fixed loan. I like to borrow money for things tied to the house....improvements, whatnot, stuff you can't take with you. I don't borrow for things like vacations and cars, but that's another topic.

[Dantilla]

I have an unsecured line of credit for playing with fixer-upper homes.
But if I'm going to use real estate equity, I want a fixed rate.

I would figure out how much you need, then:

If you're going to attack it full-bore until complete, a simple refinance. No second. That way the whole loan is at the best interest rate.

-Or-

If you're going to "putter" in your spare time, then a line of credit makes sense so you're not paying interest on money you're not using.

Of course, if you currently have an irreplacable sub 5% interest rate, it makes no sense to refinance at a higher rate. Then a small second may be the way to go.

Bottom line, a fixed payment on a fixed interest rate is the way to go.

[Zeke]

I think I like that advice.

[on2wheels52]

I couldn't pm you.
Jim

[Zeke]

Nope, I quit PM's a year ago. But, anyone can email me thru my profile.

[RickM]

Can you write off the money spent from a line of credit?

I had taken out a fixed equity loan, with a low interest rate, and can write the amount off....plus the rate was much lower than a line of credit.

If you can come up with a figure and don't use the entire amount then use the remainder to pay toward the principal of the loan.

Just a thought.

[Zeke]

I think any money owed as a result of mortgaging real estate is deductible as far as the interest paid goes. And a line of credit is secured by the home, so it's a mortgage.

Technically, the borrowed money is supposed to be used for improvements to the property or close to that idea. Spending money borrowed against a house for a vacation is not what the IRS had in mind when they wrote the guidelines. However, it doesn't seem to be very closely monitored. {People buy cars with equity money all the time, which to me is very stupid unless you really know how to manage money.

For instance, the car will depreciate rapidly, but if you wrap it up in a 30 year loan, that depreciation will look like chump change compared to the payoff.

[Steve Carlton]

I think BofA has an equity line where you can lock in portions to fixed as you see fit.

If you can tell me the loan amount size, and the combined-loan-to-value (CLTV) of your 1st & proposed 2nd (the percentage of appraised value the two loans add up to), I can tell you what Citibank's rates are. For example, with a very good FICO, for a $150K line or above to 80% CLTV, their best rate is prime - 0.25% = 8%. Fixed 7.3%. Zero closing costs.

[Zeke]

I would be below 40% CLTV spending 10K with 650-700 FICO. It goes up and down and like Jimmy Crack Corn, I don't care.

[Steve Carlton]

Low loan amounts jump the pricing, as they're paying the closing costs. I'd recommend a HELOC at $75K or $150K to get the best rate and only borrow what you need. The interest on $10K won't be significant to worry about, and I think the prime is about done going up, anyway. Sent you an e-mail.

[pmajka]

I have a LOC and my intrest payments are more than a 30 yr fixed for the same amount. gonna convert it to a second mortgage.

[KFC911]

From my perspective, it all depends on the amount you're going to borrow and for how long. I personally like the flexibility of a HELOC (via a credit union, so the rates are favorable), set it up once, and it's there when you need it. I only use the HELOC as a source for investment properties, but in my case, I always pay it back in a relatively short time frame, so in the difference in interest rates isn't worth giving up the flexibilty.