You’re planning some major home remodeling. Is a cash-out refinance or home equity line of credit smarter?
We’ll answer your question with a question. What’s the rate on your current first mortgage? If you locked in a rock-star rate on a 30-year fixed at 3.5% and now need to borrower $20,000 for your project, go with a home equity line of credit. If your current rate is 4.25% on the first mortgage and you need to borrow $100,000 for remodeling, then a new first mortgage is probably the way to go.
However, keep in mind that 99% of home equity lines are adjustable rate loans where the rate can change any time the Prime Rate changes (Prime is currently at 3.75%). As soon as the Federal Reserve starts “raising rates” (which is expected to happen three separate times in 2017), the Prime Rate goes up instantly and in lock step. A rising rate on a small balance isn’t going to hurt you one bit, but on a large balance, it could get painful. Few people remember the Prime Rate was 8.75% as recently as August of 2007.
An Accunet Loan Consultant can help you evaluate the risks, rewards, and payments for all your remodel financing options. Click here to get connected with an expert.
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