So we have been in our home for 10 years. We make a good living but with saving for D16 and S19’s colleges we are what you would call house rich and cash poor. We have about 100000 -150000 in equity now. We have fully funded 529’s and retirement and will be inheriting quite a lot of money from MIL and her brother (no children) eventually. DH and I would like to move to a home on a smaller property in a few years. We have put in new windows, new HVAC and have updated a lot of the home in the 10 years we have lived here. We need to update the two full bathrooms, flooring and probably the roof. DH went to the bank to ask about a refi. The bank said we can not take money out during the refi but we can get a HELOC and then roll the HELOC into the mortgage As the interest rates are lower they say our payment would be the same but it would extend the term by a couple of years. Does this make sense? If we do this do we wait until after the FAFSA priority deadline? The EFC on her school of choice says she will qualify for a small institution grant in addition to her merit.
I would talk to another financial. It is very much possible to “cash out” during the refi process - you would refinance for an amount that is equal to the amount you want in cash + the remaining principal and interest due on your current mortgage. With lower interest rates, it is quite possible that your payments would then still remain the same.
HELOCs can be a very useful tool, but the variable interest rate can come back to bite you if you commit to having a large balance in there and rates begin to climb. Having said that: the Fed has made every indication that rate increases are not anticipated to be quick/severe in nature over the next couple of years (they don’t want to throw the country’s economic off track), so this risk isn’t as high as it was in the past.
FWIW: See if there are any credit unions in your area that offer mortgage products. They tend to offer more personalized service than many of the “big banks” that are out there. (I work in the financial industry.)
This sounds like 2 closings to me. Check the fees very carefully. Closing on the HELOC to get the cash you want and then on the refi. Our bank did a low fee HELOC when we refinanced it, but do check. Then check the time period for the refi. You can roll a HELOC into a refi. We just did that, too.
There are two ways to accomplish this. The simplest would be a “cash out” refinance. If a lender tells you they can’t do this for you, search for a new lender.
The second approach, getting a HELOC and then refinancing both loans into a new first mortgage, works too, but will involve more effort on your part, and most likely more fees.
Or just get the HELOC, use it to pay for repairs/improvements, and pay it down between projects. Currently, HELOC interest paid is deductible. Other than appearing on your credit report, there is no downside if there is no balance on the HELOC.
HELOC money doesn’t ever have to hit your bank account; you write to the contractors checks off the HELOC which then activates the debt. On my online accounts, the HELOC account is found with the Mortgage and Credit Cards and shows your outstanding balance.
I suspect zeebamom comments referred to the refinance option.
One advantage of the HELC is it can act as an emergency fund. If you lose your job, it could give you a way to access the equity in your house. It doesn’t sound like you need it but it is something to consider.
Make sure you compare rates before you sign for anything. 1/4 of a point on a large loan adds up to lots of money over 15 or 30 years. So look at rates and look at closing costs. There may be wide variations in both.