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Real Estate Home Mortgages/Home Addition Payment Options

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Question
Hi Mark,

My husband and I are retired and own a home currently valued at about $570K. We have a 15 year mortgage (obtained 30 months ago) at a 2.625% interest rate, with a balance of $326K. We are considering an addition/remodel project that will cost less than $75K.

What is the wisest way to pay for this? We each have higher than 750 FICO scores. We have both an IRA and a 401k with enough value to pay outright, with the associated tax implications. We have also been considering either an Equity Line-of-Credit, or a home improvement loan, with the payments made with a monthly deduction from one of the retirement accounts.

Any advice?

Peggy

Answer
I apologize for the late reply on this.  I was out of the office for a few days.  Based on what you are showing I would recommend a Home Equity Line to cover it.  The first mortgage has an interest rate so low that refinancing to a higher rate for the full amount would only hurt you, I don't think I have seen many mortgages below 3% so you have an exceptional rate there.  Pulling the money from a retirement account is fine, however paying the taxes on the withdrawal is probably not too advantageous, and if you compare that to the interest rate you pay on a HELOC you would probably pay more in income tax than you pay in interst on the loan.

The only other option I can think of is to look into borrowing the money from your retirement account.  Your financial planner should be able to give some advise on that front and what the implications are, but from the mortgage standpoint the equity line appears to be the best route.

Feel free to follow up with any questions.
Best Regards
About Real Estate Home Mortgages
This topic answers questions related to purchasing a home, owning a home, home ownership, mortgage education, mortgage applications, and mortgage needs whether buying a first home or refinancing a current loan. Issues related to home ownership, home equity, mortgage education, refinacing options, home improvment finacing, first time home loans, home equity loans, vactation home loans, and mortgages for investment homes are dealt with here also. Though not the primary focus of this topic, Home Equity Lines of Credits (HELOCS), reverse mortgages, and calculating home equity may also be asked. If you do not see your home mortgae, home finacing, or home equity question answered in this area then please ask a question here

Real Estate Home Mortgages

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Mark Schow

Expertise

Can: reverse mortgage, mortgages of all types, debt management and settlement, foreclosure problems, real estate investment strategies. Can't: real estate law, standard banking outside mortgage and debt.

Experience

2002-2004 President of the Utah Association of Mortgage Brokers (UAMB) 2004-2008 Board member UAMB, Fraud task force chair, PR chair, Legislative chair. 2002-2005 Delegate to National Association of Mortgage Brokers, Legislative committee. 1996-2008 COO Debt Free Living- Now Debt Fast Track. Founder of company- consumer debt elimination company. 1994-2008 President Secured Financial Freedom. Mortgage broker, serviced nationwide, 120 employees and handled real estate investment loans for the Carlton Sheets group and some Rich Dad clients. 2005-2011 ARES, LLC. Owner, Manager. Private money investments, business consulting. 2011- present, Reverse My Mortgage, LLC. Managing Member. Reverse mortgage education, marketing and sales. 2011- present. Salt TV Network. Financial contributor, Sales Manager.

Organizations
UAMB, NAMB

Publications
Ezines.com, Authorstream.com, articlesbase.com, articlealley.com, yahoo answers, wiki answers, UAMB newsletters.

Education/Credentials
High School- Alta High graduated 1984 Brigham young University- 1986-1991 Business Finance Major

Past/Present Clients
Salttvnetwork.com, Doreen Stein, PEI institute, Franklin Covey Coaching, Capital Financial Group, the rest are consumers- cannot give out names due to privacy but have had thousands of clients both for debt elimination and mortgage work.

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