Advice on home equity loans?

We've been thinking about doing a big renovation for the last couple years and are finally ready to go for it.  We'll need a sizable amount in financing, so need to start looking into options.  Any advice on lenders you've had a good experience with for this?  Any thoughts on home equity loan vs cash out refinance?  We are total newbies on this, the only home loan we have ever done so far is our mortgage on the house.

Thanks!

I would guess that with the home equity line of credit, you are not paying interest on money you are not using.

On the other hand, with the re-fi, you have extra money in case the construction cost goes overboard.  Will you be tempted to use the extra money if it is not used for the construction? "Dear, wouldn't a new BMW be nice?"

My opinion is to refinance with cash out, and decrease the number of years. So if you had a 30 year, take cash out, but try to refinance at 20 years. Kind of a win-win.

I think it would be easier to get the heloc. It is nice to have in reserve after you pay it off.  Check around for rates.  Credit unions are usually good if they offer them.  Valley has an easy program, but the rates are higher.

also, if you have a good rate on your mortgage don't give it up.

Thanks all for the thoughts.  I think the HELOC (home equity line of credit) is out for us because we don't want a variable rate.  With the amount we have to borrow, it's gonna take a while to pay off (sigh) and who knows where rates will go eventually.  I understand that a home equity "loan" is more of a second mortgage, with a fixed rate.  We do have a really great rate on the current mortgage - but the refinance at a shorter term might actually be a great idea if we can still swing the monthly payment at that point, I have noticed that the short terms means lower rates so..

narabear said:

Thanks all for the thoughts.  I think the HELOC (home equity line of credit) is out for us because we don't want a variable rate.  With the amount we have to borrow, it's gonna take a while to pay off (sigh) and who knows where rates will go eventually.  I understand that a home equity "loan" is more of a second mortgage, with a fixed rate.  We do have a really great rate on the current mortgage - but the refinance at a shorter term might actually be a great idea if we can still swing the monthly payment at that point, I have noticed that the short terms means lower rates so..

Not sure what mortgage rate you are paying now but I wouldn't refinance with cash out unless you can lower your rate at least .75%. We've refinanced multiple times in the last 16 years and will not be refinancing anymore since our current rate is 2.625%.  

Also remember that closing cost of a refinance is several thousand dollars. HELOC will only cost you pennies.  Also with HELOC most lenders give you the option of converting the balance to a fixed loan. That may put your mind at ease if you're worried about variable rates rising over time to pre-2000 level.

Good luck!

Oh, interesting, I didn't know you could convert to fixed at some point with a HELOC, thanks!

Just worked with Columbia Bank for a line of credit and had a great experience. They do it all in house.  PM if you want more info. I also spoke with  PNC and  Valley.

narabear said:

Oh, interesting, I didn't know you could convert to fixed at some point with a HELOC, thanks!

Yes, it's sometimes at a slightly higher interest rate but still reasonable. I'd suggest applying for as much credit as your equity will allow, beyond your current project cost. There's really no downside, it just allows you flexibility if you did need more. Now is the perfect time since home values are through the roof! 

Cash out refinance has not been an option for us because we've already refinanced to a very low rate, but we're very happy with the HELOC.

We had a great experience with Peapack-Gladstone Bank. We had not-so-great experiences with PNC and Valley, both due to appraisal issues. Our area is so nuanced, if someone doesn't use a local person it can be really off.

Good luck!!

istudymemory said:

Just worked with Columbia Bank for a line of credit and had a great experience. They do it all in house.  PM if you want more info. I also spoke with  PNC and  Valley.

I used Columbia as well and found them very easy to work with and their rates were much better than the big banks (Bank of America was a joke).

Please be careful with how much you finance.  House prices are high right now, and they can go down as well as up.  Many people ended up under water with second mortgages back in '08/09, and almost nothing has been done in regulatory terms that would prevent it happening again when (not if) house prices drop.

you can get a fixed rate heloc.  will be a higher rate of course.

We used Peapack Gladstone for our HELOC. Their rates were better than most banks. Very easy to work with and they have a branch in Summit.

max_weisenfeld said:

Please be careful with how much you finance.  House prices are high right now, and they can go down as well as up.  Many people ended up under water with second mortgages back in '08/09, and almost nothing has been done in regulatory terms that would prevent it happening again when (not if) house prices drop.

This is a really important factor.  It would be great if there was a way to get even a ballpark figure of the expected high and low values of a house for, say, the past 5-7 years so people could make an informed decision about how much equity to take out of their house.  It's hard to guess when you would ever be in a position to need to sell your house but if that day comes you don't want to be impeded by trying to do a short sale.

If the economy craters again, banks might shut off access to HELOCs and you might not be able to get your hands on the money when you need it. This happened to a lot of people last time.

mrincredible said:

max_weisenfeld said:

Please be careful with how much you finance.  House prices are high right now, and they can go down as well as up.  Many people ended up under water with second mortgages back in '08/09, and almost nothing has been done in regulatory terms that would prevent it happening again when (not if) house prices drop.

This is a really important factor.  It would be great if there was a way to get even a ballpark figure of the expected high and low values of a house for, say, the past 5-7 years so people could make an informed decision about how much equity to take out of their house.  It's hard to guess when you would ever be in a position to need to sell your house but if that day comes you don't want to be impeded by trying to do a short sale.

That's why I think now is a good time to apply for a HELOC, but not  plan on spending it all. You can probably get a much higher credit limit than you think, but you don't have to actually borrow it all now (or maybe ever!). 

We gave some thought to "refinancing" our HELOC recently for exactly that reason, so we'd have the maximim amount possibly available if we ever needed it. It's just hard to know if it's worth the effort.