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addition on the house - how to finance?

post #1 of 7
Thread Starter 
We are putting an addition on our house. It will cost about $40,000. My house is worth about $140,000 as it is now and I owe $75,000. I bought it in 2001 for $100,000. Values are increasing a lot here. My mortgage is currently $700 a month. We'd like to stay around $1,000 with the addition. We have about $10,000 to put down.

So - what is best: 2nd mortgage, refinance, home equity line of credit, something else? I don't understand the differences.

Thanks!
post #2 of 7
We are in the same boat, and I've done a lot of research on this. DH's rented shop has changed owners and the writing is on the wall: after 18 years he will have to move. So we want to build a barn at our house for his business. At first, I thought we'd use a home equity line of credit (HELOC), but the rates are variable and will go up sooner than we could pay off the $75K. I also looked into a home equity loan, but the rates are higher than mortgages right now. A business loan for dh would also mean a high interest rate.

So we are refinancing our mortgage to a 30 year (we currently have 12 years left on a 15 year mortgage - ack!) and rolling in the barn costs. It will be less than $200 more per month. We're still committed to paying our mortgage off early, and have no other debt, so I am hopeful we can still meet that goal.

You have to look at interest rates and whether or not they are variable, because interest rates are on their way up...
post #3 of 7
Thread Starter 
With the refinaing thing: How do I calculate what the new payments would be? I don't mind sharing the details. The current mortgage was for $80,000 on a $100,000 house (I put down 20%). I owe $75,000. They payments are $700 a month. The new mortgage (with the addition) would be about $120,000.

And what is the first step? I have preliminary plans drawn. What do I do next? Get the financing? Get estimates for the work? Go shopping and redecorate???!!
post #4 of 7
Here is a simple calculator that can help you figure out your new mortgage payment (among other things):

http://loan.yahoo.com/m/mortpmt.html?i=5.38&y=30

30 years at 6% for $120,000 would be about $719/month. 15 years would be about $300 more. Opt for the latter if you can. Get the estimates first from a builder. Get a few while you're at it, as your mileage may vary. Do NOT include "decorating" in your estimate. You don't want to go into mortgage debt for decorating...
post #5 of 7
Bamboogrrrl: I always thought that it was better to take out a 30 year mortgage and them plan to pay it off in 15, that way if there's a catastrophic event like a death in the family or a job loss where money becomes really tight, the payments that you are obligated to make are lower so you have less of a chance of defaulting on your mortgage.

It may be a matter of personal taste, of course, but that what my financial advisor told me -- to take the longer repayment term and then commit to paying down principle early.
post #6 of 7
Good point Belleweather! It all depends on if you can actually make the commitment to pay down the 30 year mortgage faster. Most people can't. At least according to Dave Ramsey. In our situation, I'm taking a 30 year mortgage for exactly the reasons you describe, but I know that I can pay it off quicker, because I'm already in that habit...
post #7 of 7
You can find lots of good information, and calculators that will let you compare different financing options, at mtgprofessor.com
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