We want to pull out about $50k of home equity for some things. Finish the remainder of our basement, possibly new floors on main floor, total revamp of our backyard, back deck needs new railings and want to add a second staircase.

Anyway, never done this type of thing, and I know there are different methods to get money out so I'm looking for the best option.

Here is our specific situation;
800/excellent credit, we have ~$500k in equity, but only looking for ~$50k, so we have plenty of room as far as LTV goes.

We currently have ~20 years left on our loan and it's ~2.5% fixed conventional, so def. not looking for that to change.

What is the best option/rate for what we need? Are there fees/ costs with this type of thing? Multiple term length options? We want payment around $500/mo or so, and I'll be putting large chunks towards it when I get yearly bonus in Dec. ($3-$5k probably)

We have many projects we want to do with this, not just 1, so it may take a while to finish it all, or even get to some of it. So that is a consideration. We are ready to begin paying installments on it at anytime.

Any other info needed that may be pertinent?

My email is on my profile. We're going to run a rate special in March from what I am told. What you describe should have no closing costs and is interest only for 10 years but you can pay principal at any time. Quite a few posters here have used these in the past. I don't originate them as this is a retail bank product.

Haven't been told what the one year promo rate will be but I'll be checking tomorrow.

Starts March 4, 6.99% for the first year.

jja79 said:

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Starts March 4, 6.99% for the first year.

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7%, what type of loan is that? Just a typical home equity loan?
so quick numbers, $50k, 10 years at 7%, what would interest only be?
And then I can pay a few hundred on top of that every month to pay down principal?

I'm not familiar with interest only loans.

Line of credit that can be paid down and drawn back up during the 20 year duration of the loan. In your example of $50K loan with interest only would be ~$290/month. Typically this type line of credit has no closing costs unless the loan amount is really high or an outside appraisal is required.

Let's say a guy takes one out and 3 years later pays it off, they can still call up in 3 years or 5 years if they need some cash and make a draw.

These loans become amortizing after 10 years.

As I mentioned these loans are a retail bank product and I don't originate them but I can put someone in touch with the right party.

Can be used for basically any purpose such as home improvement, bill consolidation, down payment on an investment house, down payment on another primary residence when the home securing the HELOC is becoming an investment property or even being sold later.

jja79 said:

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Line of credit that can be paid down and drawn back up during the 20 year duration of the loan. In your example of $50K loan with interest only would be ~$290/month. Typically this type line of credit has no closing costs unless the loan amount is really high or an outside appraisal is required.

Let's say a guy takes one out and 3 years later pays it off, they can still call up in 3 years or 5 years if they need some cash and make a draw.

These loans become amortizing after 10 years.

As I mentioned these loans are a retail bank product and I don't originate them but I can put someone in touch with the right party.

Can be used for basically any purpose such as home improvement, bill consolidation, down payment on an investment house, down payment on another primary residence when the home securing the HELOC is becoming an investment property or even being sold later.

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so in the $50k example, let's say I have used up all $50k in say 6 months. Interest only payback is $290/mo, do I have ability to pay another whatever hundred $ a month to go towards principle? Does the interest only amount change as I do this?
Can I pay off principle before that 10 years, or at 10 years, say principle balance is $10k, then it's just amortizes as a $10k, 7% loan.. for how long?

Still a bit confused.
How do I set that up in excel or similar to see how payments effect the balance?

You can close on it as a reserve and never draw on it if you don't want to. There's no prepayment penalty so you can pay principal whenever you choose which reduces the interest due because you pay interest only on the outstanding. There's nothing magic about 10 years other than that's the end of the interest only period and any balance at the time begins to amortize.

If you draw $10K the first month and then pay it off in a month you owe one month's interest and nothing more.

If interest rates fall on this type of product can you refinance into the lower rate?

HELOCs are adjustable after the first year so they follow the market. A person can have only one equity loan and can do an equity loan just once per year.

How's Midland?

The key work is "adjustable". After a certain time, one year maybe two, you are subject to market. Right now it could jump to 9.0-9.5. But if the market goes down during the start rate it could be 8 or even 7.

Being subject to that variability in cost must be factored in your decision.

62strat said:

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jja79 said:

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Line of credit that can be paid down and drawn back up during the 20 year duration of the loan. In your example of $50K loan with interest only would be ~$290/month. Typically this type line of credit has no closing costs unless the loan amount is really high or an outside appraisal is required.

Let's say a guy takes one out and 3 years later pays it off, they can still call up in 3 years or 5 years if they need some cash and make a draw.

These loans become amortizing after 10 years.

As I mentioned these loans are a retail bank product and I don't originate them but I can put someone in touch with the right party.

Can be used for basically any purpose such as home improvement, bill consolidation, down payment on an investment house, down payment on another primary residence when the home securing the HELOC is becoming an investment property or even being sold later.

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so in the $50k example, let's say I have used up all $50k in say 6 months. Interest only payback is $290/mo, do I have ability to pay another whatever hundred $ a month to go towards principle? Does the interest only amount change as I do this?
Can I pay off principle before that 10 years, or at 10 years, say principle balance is $10k, then it's just amortizes as a $10k, 7% loan.. for how long?

Still a bit confused.
How do I set that up in excel or similar to see how payments effect the balance?

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I have a HELOC.

You can pay back whatever you want above the interest only. We paid ours off even before the 1 year promo ended. Right or wrong, I honestly didn't get too far into the weeds of the interest only aspect and following amortization schedule because I knew we weren't going to have the loan for that long, main point was confirming there was no early payment penalty. We just didn't want to drain our savings for remodel.

After the promo, the rate will probably be prime +/-.

Right now the amount borrowed in our HELOC is $0. It's there if we want/need it, but we aren't paying any interest or fees since the borrowed balance is $0.

jja79 said:

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Line of credit that can be paid down and drawn back up during the 20 year duration of the loan. In your example of $50K loan with interest only would be ~$290/month. Typically this type line of credit has no closing costs unless the loan amount is really high or an outside appraisal is required.

Let's say a guy takes one out and 3 years later pays it off, they can still call up in 3 years or 5 years if they need some cash and make a draw.

These loans become amortizing after 10 years.

As I mentioned these loans are a retail bank product and I don't originate them but I can put someone in touch with the right party.

Can be used for basically any purpose such as home improvement, bill consolidation, down payment on an investment house, down payment on another primary residence when the home securing the HELOC is becoming an investment property or even being sold later.

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Can I do this on a former primary residence that is now a rental that I have around 300k in equity in?

We do have an equity product for residential investment properties that is different than a cash out refinance on that property. It can be first or second lien position. As with the HELOC it's originated by someone other than me but I can direct a person at the correct point of contact.

It's a great product for the right person in the right situation.

I've most often seen it used for either home improvement or to fund the down payment on a new primary home purchase.

Going well sir! Do you have the same email address?

I do.

jja79 said:

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We do have an equity product for residential investment properties that is different than a cash out refinance on that property. It can be first or second lien position. As with the HELOC it's originated by someone other than me but I can direct a person at the correct point of contact.

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Any idea what kind of rate that's getting?

No idea about terms because it's not something I originate. I just know it rolled out with the second lien feature a few months ago.

jja79 said:

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Starts March 4, 6.99% for the first year.

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So this is a HELOC, or lump sum loan?

Is there any reason to not get a HELOC set up now since we anticipate using it? Better to have it up and running so we can begin borrowing as soon as we are ready?

Any negatives if we never actually draw from it?

A HELOC is a line of credit that has creates no obligation to you if you never draw on it. I would guess a significant number of people put them in place in anticipation of a need coming up instead of waiting until the need is immediate.

The other poster was asking about a different kind of loan that is typically a lump sum.

jja79 said:

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A HELOC is a line of credit that has creates no obligation to you if you never draw on it. I would guess a significant number of people put them in place in anticipation of a need coming up instead of waiting until the need is immediate.

The other poster was asking about a different kind of loan that is typically a lump sum.

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What type of loan is it that you referred to that is 6.99% in March?

HELOC

Did you refi your loan to get down to that 2.5% rate? If so, did you cash out any equity at the time? You many not be eligible for the HELOC if that's the case. At least that's what I'm running into right now.

Yea that one of the quirks of Texas law. Your first lien is a cash out then you cannot stack a second lien cash out on top. Only one at a time. The legislators did not put an expiration date on a cash out first lien. You have to do a normal refinance on the first lien to them get the second. That is not normally a good move.

Someone can update this since it's been a while when I have ran into this scenario

Don't know if you have the option or your age, etc., but for that amount I might just do a 401(k) loan.

As Steve said if you've taken equity out it's a cash out and you would have to refinance again to make it a rate and term to be eligible for a HELOC behind it again. The current rate market doesn't favor that for many people.

Fwiw, pretty sure op is in Colorado

Another post says you're in Colorado. If you want to look at this we also have a bank charter in Colorado.

bigtoneag said:

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Did you refi your loan to get down to that 2.5% rate? If so, did you cash out any equity at the time? You many not be eligible for the HELOC if that's the case. At least that's what I'm running into right now.

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yes I refi'd back in 2020. We did not do a cash out. Straight refi to go from 4.5 to 2.675. We added the closing costs to the balance it was like $1000.
Did not reset to 30 years; we kept it at 26 or whatever it was.

Yes I am in Colorado.

94chem said:

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Don't know if you have the option or your age, etc., but for that amount I might just do a 401(k) loan.

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what is the rate for this type of loan?

I don't have an active 401k, all previous ones have been rolled over to Ira/roth. Definitely have enough to cover our needs.

62strat said:

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94chem said:

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Don't know if you have the option or your age, etc., but for that amount I might just do a 401(k) loan.

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what is the rate for this type of loan?

I don't have an active 401k, all previous ones have been rolled over to Ira/roth. Definitely have enough to cover our needs.

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Rates are generally prime. Benefit is that interest is paid into your 401k account though, not to a bank,

But don't think you can do it since they've been converted.

401s have to write in their plan access to funds and will. Most have a home purchase loan but not all. You have to check with the plan for approval and terms. While you can make general statements your plan will have their unique terms

SteveBott said:

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401s have to write in their plan access to funds and will. Most have a home purchase loan but not all. You have to check with the plan for approval and terms. While you can make general statements your plan will have their unique terms

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I'm allowed to have 50K in loans for whatever I want. Rate in 2020 was 4%. I think recently it was 6%.

Good for you. Again each plan writes their own rules.