Mortgage or Equity loan from home own outright

Yes, it is called a first lien home equity loan. Considering how many people are currently losing their homes due to home equity loans they cannot repay, I advise delaying the remodeling until you can pay for it with cash.

Of course you can take out another normal mortgage on the house once you pay the first one off. But then you won't own the house outright any more. :-)

-Sandra the cynic

If I take out another normal mortgage or first lien home equity loan from the house once I pay off, will there be any title paper work (conveyance or county recording etc) involved?

Thanks,

-Hengyi

Look for an attractive balance transfer option from a credit card, then max it out in a single transaction. I've seen fixed rates of 4.99 with no expiration and a 3% transfer fee, max $99 per transaction. When complete, pay back what's left over to reduce the balance. You'll pay interim interest on the extra money while doing renovations, but taking all the money at one time minimizes transaction cost.

That probably compares favorably equity loans and it's unsecured. You still own your home without lien.

Why? He may very well be able to pay a mortgage. He's p[aying one now. Thumper

Devil's advocate here: The fact that he can make the mortgage payments does not necessarily mean he can AFFORD to make the payments. I'd be interested in knowing whether, at the same time as he makes the mortgage payments, he can also save sufficiently for retirement, for his next vehicle and other big ticket items, maintain appropriate cash reserves, etc.

In other words, can he both repay the debt and do all of the other things he must do (live within his means)? If yes, then he passes my test for being able to afford the mortgage.

-HW "Skip" Weldon Columbia, SC

The fact that you owe a mere $5k on your house is strong evidence to me that you can handle a reasonably-sized new mortgage. You are to be congratulated.

The Federal Reserve meets again on Jan. 29 or 30th, and talk is mighty strong there will be another cut to the Fed's "benchmark interest rate." I expect it's likely this will affect 15 and 30-year mortgage interest rates in your favor. Google and you might find more on this. But it's been a funny time for interest rates, with what's known as the "bond yield curve" being partially inverted (and this being an anomaly, so no guarantees that the rates will improve still more after Jan. 30.

I would follow Skip's advice to figure how much mortgage I could afford, then run numbers, evaluate possible lenders, etc. until Jan. 31 or so. Finally, watch what the Fed does, and go from there. An interest rate of 5% on a fixed mortgage is certainly attractive, given that stocks have returned quite a bit more historically over 15 year periods. This assumes one does not mind not owning one's house outright.

It's possible you will get a good deal on remodeling contractors in general, as well, since a lot of developers have been slowed down by the oversupply of housing.

loans they

My point is that it doesn't matter if you are working or retired, own your home outright or not. What matters is if you can afford the mortgage. Do you have enough coming in? Thumper

You might consider a "line of credit" instead of a mortgage or a home equity loan. I have used these on rental properties, and they have worked very well. If you have good credit, you can usually get one from a bank at a lower rate than a mortgage or home equity loan, sometimes below prime They are more flexible and can be paid down or paid off at any time without the paper work, possible legal fees, etc. that is needed for getting a mortgage and for paying it off when you no longer need it.

Isn't this a good case for a HELOC? The OP could open a HELOC, which allows OP to have a credit card or something similar which is a) tied to equity in house b) has a variable rate based on Fed and credit score c) has a low maintainance fee d) able to paid off, but remain open for future needs.

Thoughts?

My HELOC (zero balance right now) shows an interest rate of 6.74%, I'm sure some are available for less, maybe 6.25%.

Much of the decision would depend on the OP's loan amount and intent to pay back. I see a no point 15yr fixed at 5.5%, $2300 in closing fees. Same bank, 10 year fixed loan, no point, no closing, 7.09%

The HELOC risk of rising rates is there, although may not be an issue for the OP depending on total balance and timeframe. Some math is in order. JOE

There are tax considerations. To be fully deductible interest, the proceeds have to be used for a home acquisition or improvements to the home. If you refinance, any tax deduction for interest expense on a mortgage amount not directly linked to improvements will be limited to the interest on $100,000 in principle.

I understand that whether or not interest on a loan is tax deductible depends on the purpose for which the money is borrowed. But for a given purpose, the source of the funds does not matter, does it? Wouldn't the interest paid on a mortgage, a home equity loan, or a line of credit all have the same tax implications provided the borrowed money was spent upgrading real estate?

Thanks for all the suggestions. The cost for the remodeling (some expansion) may be around 150k. We do have savings for this. I'm thinking to take some from savings and some from home equity. HELOC seems an easy option but risk of rising interest. So I'm thinking about the conventional mortgage, but closing cost and paper work may be an issue too. I guess it all depends on the loan market in the future. I don't even know when the work can start, depends on when the city can approve it :(.

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You should shop around for the best deal. For the sum you need, the closing costs represent a small percent of the total cost. I offered yesterday that I saw a 15yr fixed at 5.5% with no points but $2300 in closing costs. That's better than the no cost alternatives with rates approaching 7%. Keep in mind, unexpected additional costs may creep in, beeter to have the money lined up in advance, you can always may a pre-paypayment once the construction is over. JOE

Yes.

You have to run all the numbers, but at the end of the day, you have to feel comfortable about it. If you want to continue to own your house outright, wait until you can pay cash. Any loan with the house as collateral means someone else has a claim on that property.

If you HELOC, how long would it take to pay off the 150k you borrowed? If you can come up with a 5 year repayment plan, this is less of an issue. If the line of credit were used over longer periods, then the interest rate risk increases and the fixed rate loan makes more sense.

The advantage of a HELOC is that it still exists when it is paid off. If room 1 costs 50k to remodel, HELOC that 50k. Then pay it off in a short amount of time. Then take 30k out of HELOC for next room (improvement). Pay that off. Then take out 70k to do third room, for example.

HELOC might be worth 150k or so, but there is nothing requiring you to tap the whole 150k for credit at once. Only take out what you need to spend now- that will also reduce the risk of rising interest rates, and help you pay off the line of credit sooner.