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.
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.
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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
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