Which would be better…to refinance w/cash out or a home equity loan?
Posted by admin | Under Cash Out Refinance Tuesday Nov 4, 2008Here's the info. We want to put an addition onto our home. We purchased it new in 2002 for $119,000 and we borrowed $26,000 on our original loan which is a 5/1 ARM. In our current market area, our home would sell for between $150K and $160K. We will need $50K to do the addition. Which is the best route for us: to refinance and get the $50K or get a home equity loan or home equity Line-of-Credit? It's all confusing and I know there are pros and cons to each product. HELP!!!! Thanks in advance!
Sorry Frazure, but my debt load is minimal and my credit score is excellent…take your advertisment elsewhere.
I would get out of the ARM and get a fixed rate mortgage if I were able to get a decent rate. You will still have plenty of equity if you decide you need to get a home equity loan for something else later.
I would get out of the ARM and get a fixed rate mortgage if I were able to get a decent rate. You will still have plenty of equity if you decide you need to get a home equity loan for something else later.
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Really to much to answer here and to many variables which I do not know from the info given, but here are some generalities.
Your 5/1 arm is going to start adjusting this year so the rate is going to go up alot. And may go up again next year. You have had this loan for five years so I assume there is no longer a pre-payment penalty since they usually are not more than 5 years but they could be so check this out.
In general HELOC and Home Equity loans are at a higher rate that you would qualify for under a first mortgage because they are secondary debt to the first mortgage therefore have more risk to the lender. They do make sense for short and medium term borrowing but not really for long term. I assume that since the amount is double what you owe on the first mortgage you would not pay this off quickly and if you could you could pay off both in a little more time. So this being the case and this will be a long term loan I would think it is better to refinance all esspecially since the low interest on the arm is about to go away. If you think that this amount for the equity loan would not be a long term loan than I would still consider a refi and look into a 15 yr fixed for the whole amount seeing as the new amount is larger than the original if you tink you can pay it over a shorter term you would be able to put it all together and make it a medium to long term.
a 15 yr loan at 5.5% interest which is the current national average according to Bankrate.com would have a payment of $598.97 not including taxes and insurance of course but you pay these no matter how you finance.
I hope this helps
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I work for a leanding company and you very need to get out the arm since all your doing is adding more to it all at the end.. But if you refi 26,000 you cant take out that much with a cash out. But you could do a line of credit.
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Refi and get the 50,000 out. I have worked with several clients recently that have arm loans that are coming out of their fixed rate. The payments are going up drastically. If you were to do a home equity line this is a variable rate as well and be careful about the "teaser rates" out there to entice you but after a few months it will go up. A home equity loan will be a higher rate than if you just refinanced and got the cash out. I would refi the whole thing to get the cash out for the home improvements on a fixed rate 1st mtg so you will be assured your payment will not increase. Email me for current rates and pymt quotes. I hope this helps. Good luck!
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I am a Mortgage Banker
get out the arm get someting fixed and how about getting a shorter term like a 20 year
you dont really need that home addition do? you might regret when you try to sell your house in five years and you have equity..
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