Home equity line of credit questions/help

linsteJune 22, 2011

We're planning a kitchen renovation in the near future and are looking to finance it with a HELOC. I'm looking for some guidance as to whether we'd likely get a better rate from the large bank that holds our mortgage or the large bank that we do all of our personal and business banking with. If I approach them both, would that reflect negatively on our credit report?

Also, I'd really like to be a bit clearer on what I'm getting into. I have experience paying off typical car loans but this is new to me and I admittedly don't like debt. I'm trying to figure out how my monthly payment would work. Is there a way to do the math to see how long it would take to pay off & how much interest we would wind up paying if I were to plug in numbers somehow: Say, if we were to take $20k at 6% interest, paying $800 per month for example? Is doing a HELOC only a good idea if you can pay it back within a certain amount of years? If so, how many? I know- I'm clueless.

I'm just trying to become a little informed before I call the banks. Any guidance would be appreciated.

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For payment schedules/timelines, just google "amortization calculator"

For rates, you can easily get quotes on HELOC rates without hurting your credit. Call away. If you start filling out actual applications for credit, that impacts your scores.

"Also, I'd really like to be a bit clearer on what I'm getting into."

Your getting yourself into "lifestyle debt." Borrowing to make something prettier isn't really as good idea. You are much better off saving up the money BEFORE you spend it.

Lots of people took out second mortgages, helocs etc. If you haven't noticed, a lot of those people are now underwater in their loans or now homeless. It is just a bad risk to take on when you could just save up for a couple of years instead.

    Bookmark   June 22, 2011 at 9:59PM
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Thanks for your help and the direction to the calculator. We've already purchased new appliances as we could afford them. Now our cabinets falling apart (they're about 50 years old) so this isn't about making it prettier. We're hoping to keep the budget as minimal as we can. Thanks again.

    Bookmark   June 23, 2011 at 10:18AM
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I'm an ametuer so take my comments at face value. First, understand that there are two types of loans: Home Equity Line of Credit (HELOC) and a Home Equity Loan.

A HELOC works largely like a credit card in that you are approved for a certain amount and then you go spend it and your payments are calculated similar to a credit card. Depends on the agreement, but I know for mine at the five year point I couldn't charge anymore and was set on a payment schedule to pay off at 15 years.

A Home Equity Loan is essentially a 15 year term loan from the beginning. They give you a set amount of money with a set payment schedule to pay it off in 15 years.

This may be a worthwhile investment but I'll agree with Bill in making sure you can afford it. You mention a 6% rate which may be a guess on your part but in reality if that's the rate you can get then you've got credit problems and should reconsider this adventure.

    Bookmark   June 24, 2011 at 12:35AM
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Thanks for the info Kangell. I just tossed the 6% out there. I also just tossed the $20k out there as we hope to keep this low budget.

I've always had very good credit, though I haven't checked since last year, so I do hope I can get a decent rate. Thanks again.

    Bookmark   June 24, 2011 at 8:41AM
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If your existing cupboards are 50 years old, are they solid wood? If so, you might consider fixing them and then painting them white (or black or a bold color if you want to be dramatic). That will "buy" you some time to save up the $$ for the kitchen you want.

We are getting our porch re-done as some of the boards are rotting (73 years old) but we saved up the cost first. No, it didn't take us 73 years! We have only been in this house for 19 years, LOL.

    Bookmark   June 24, 2011 at 8:32PM
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