Home Equity Loan question do I do it now or later?

susans02May 12, 2006

We're putting an addition on our home - total cost will be about $250k but we want to add on $25k for "over costs." Whatever we don't use from the loan after all is said and done will go right back to the bacnk. We are thinking of a 30 year (pay back in 15) plan. We hope to have it paid off well before then so we think we'll be OK. This is the question - construction doesn't start in late Aug-Sept. But the interest rate info has us worried. Do we take out a lona now and put it into a CD or something until then or wait until closer to the project. I know interest will start accruing when we take out the late - but we're nervous that we'll end up with a 8+% rate later in the summer.

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Gosh - sorry for all of the typos above!

    Bookmark   May 12, 2006 at 4:14PM
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You may be better off with a home equity line of credit instead of a loan. You can open this up now, and then when you need it, write a check for it. Once you pay off the principal, it's still there for emergencies or other uses later on.

    Bookmark   August 5, 2006 at 6:08PM
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I don't know how it works for additions, but a new home construction loan locks when you take it out, but you only pay on the amount of money that you have outstanding. In other words, you might break your project into 5 stages of $50,000 each. At the start of each stage, you get that much money and start paying that much more interest.

    Bookmark   August 5, 2006 at 8:14PM
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I took out a fixed equity loan for 6.49% and put the money and in a money market that pays 4.5% (online bank). This MM is totally liquid, but a CD is not a bad idea if you know you absolutely don't need the money for awhile. I know the line of credit is popular, but at least with the fixed loan, your payment will never change.

    Bookmark   August 8, 2006 at 12:41PM
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If the amount of your loan remains the same, and interest rates go up, if your rate goes up (and usually rates on Home Equity Loans are at variable rate) ...

... if the amount of your regular payment remains the same ...

... the duration of time during which you'll be paying it will be extended for a substantial number of years!

As someone suggested, can you arrange for your mortgage amount to be available in portions, at various times, as needed?

ole joyful

    Bookmark   August 8, 2006 at 3:49PM
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