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Finance People - HELOC vs Cash Out Refi

PinkelsVisor

Elite
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Jan 7, 2021
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568
Hoping to get some advice from the financially inclined or mortgage pros here.

We are looking to build a new home in a nearby subdivision. They require 15 percent down payment to start construction. To get this amount of cash, we are debating on tapping into our current homes equity. The home would take about 10 months to complete, so we would be using these funds until we list the house next Spring/Summer.

Researching HELOCS the idea of withdrawing only what you need seems attractive. You can make interest only payments which would be around 300-400 bucks a month after we use what is needed to start the build. We would keep our current low rate on our mortgage which sounds good, but then have two payments. The APR fluctuates also with HELOCS each quarter, right now it is at 4.5 percent. That part concerns me a bit as well.

Cash out refi seems straight forward. We would do either a 3/1 or 5/1 ARM since those rates seem to be around 4 to 5 percent. Our monthly payment wouldnt change much at all (currently in a 15 yr loan) while we would get the cash needed, so that part is nice. I believe this option would require some closing costs so that would eat away some of those funds. Also we are essentially resetting the loan, which I guess wouldnt matter since we are leaving in 10 or so months.

What I am not sure of is how either option impacts our credit and ability then to close on our new loan for the TBB home. We dont want to do the dreaded 'double move', would rather get the new build complete, then list the current home. Maybe we could get lucky enough to have the closing dates for both in sync? I dont want to count on it though.

Appreciate any advice or feedback you have patriots!
 

Taggart

Elite
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Jan 9, 2021
Messages
1,484
We did a HELOC when we sold our first house and moved into our new house since we didn't have enough for a down payment at the time. However we didn't keep it open long at all... once the first house sold we closed out the HELOC. Super easy process though.
 

PinkelsVisor

Elite
Founder
Joined
Jan 7, 2021
Messages
568
We did a HELOC when we sold our first house and moved into our new house since we didn't have enough for a down payment at the time. However we didn't keep it open long at all... once the first house sold we closed out the HELOC. Super easy process though.

Thanks, how long did you have it open for?

We would be keeping our HELOC open for about 10 months. The APR increases 'could' occur a few times in that span so that part worries me a little.

If we only needed it open for a few months seems like it would be a no-brainer.
 

quickfeet

Get Steppin’
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Joined
Feb 19, 2021
Messages
3,543
In your situation, HELOC without a doubt.

You will just pay a small origination fee with minimal paperwork. If you do a cash out refi you are going to be paying a ton in closing costs and its way more a pain in the ass
 
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