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Old 07-09-2013, 06:17 AM
 
236 posts, read 524,747 times
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Our current home is paid off, and we are planning a slight downsize (a more convenient location is the primary motivation; the downsize is incidental). The 'new' home will cost about 80% of the value of the current one. We have enough free cash to pay for at least half of this new home.

Rather than take out a mortgage for the other half and incur fees relating to same, we are considering taking out a HELOC or Home Equity loan. The current home will be put on the market shortly after we take possession of the new one, and its proceeds (part of the proceeds of course, and whenever that happens -- I guess 3 to 6 months after new home possession) will be used to pay off whatever instrument we end up using. We believe in being debt free in general but will finance short term or when it pays off (such as when an auto manufacturer once paid me a bonus to borrow money at 0.9%).

We have most of our money invested as follows: 50% IRA etc (not gonna touch that), 35% stocks/funds and balance cash. This is not counting real estate (ie current home). We also cash flow via our incomes and have a few earning years left, hopefully.

I'm just looking for the wisest option (most financially prudent). So far that appears to be HELOC or Home Equity. But am slightly concerned about the other documents that happen 'automatically' with a mortgage: Appraisal, Title, etc. I figure I can do those on my own but is there any advantage to having a bank do this (I know the disadvantage is, generally speaking, cost).
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Old 07-09-2013, 11:03 AM
 
Location: Mount Laurel
4,187 posts, read 11,303,917 times
Reputation: 3509
Quote:
Originally Posted by whynot1986 View Post
Our current home is paid off, and we are planning a slight downsize (a more convenient location is the primary motivation; the downsize is incidental). The 'new' home will cost about 80% of the value of the current one. We have enough free cash to pay for at least half of this new home.

Rather than take out a mortgage for the other half and incur fees relating to same, we are considering taking out a HELOC or Home Equity loan. The current home will be put on the market shortly after we take possession of the new one, and its proceeds (part of the proceeds of course, and whenever that happens -- I guess 3 to 6 months after new home possession) will be used to pay off whatever instrument we end up using. We believe in being debt free in general but will finance short term or when it pays off (such as when an auto manufacturer once paid me a bonus to borrow money at 0.9%).

We have most of our money invested as follows: 50% IRA etc (not gonna touch that), 35% stocks/funds and balance cash. This is not counting real estate (ie current home). We also cash flow via our incomes and have a few earning years left, hopefully.

I'm just looking for the wisest option (most financially prudent). So far that appears to be HELOC or Home Equity. But am slightly concerned about the other documents that happen 'automatically' with a mortgage: Appraisal, Title, etc. I figure I can do those on my own but is there any advantage to having a bank do this (I know the disadvantage is, generally speaking, cost).
If you decide to go with HELOC or home equity on the current home, make sure you are aware of any pre-payment penalty for closing the line or loan. It may/may not be a lot of money but you want to be aware of it so that it's not a surprised.
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Old 07-09-2013, 01:46 PM
 
Location: Texas
1,029 posts, read 1,414,881 times
Reputation: 1994
When I looked at a Home Equity loan my credit union required me to sign paperwork saying I would not put the home on the market for the next 12 months. I would check to make sure your bank does not have a similar requirement.

Are the fees for the HELOC significantly less than getting a mortgage?
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Old 07-09-2013, 02:54 PM
 
3,805 posts, read 8,941,545 times
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HELOC is going to be, or become variable, likely tied to LIBOR rate. Rates are going up, hard and fast. You might look into a fixed-rate option as well.
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