Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
florida room
Old 08-15-2016, 09:08 AM   #1
Full time employment: Posting here.
 
Join Date: Mar 2010
Location: Chicago
Posts: 832
florida room

Hello everybody. I am having somewhat of a brain freeze as to how to pay for a room addition which is going to cost us 40k. Even though we have the cash it would amount to about 10% of our investments. A home equity loan for 5 years through PenFed has a fixed rate of 4% and no closing costs. Our cash part of our investments are in PenFed CD's earning 3.06% and our mortgage has a rate of 3.375% so I don't want to do a cash out refi and mess with that rate besides there would be closing costs involved. I'm just thinking with rates so low right now that maybe we should use other peoples money. Thoughts. Thanks.
__________________

__________________
ripper1 is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 08-15-2016, 09:13 AM   #2
Thinks s/he gets paid by the post
Ready's Avatar
 
Join Date: Mar 2013
Location: Southern California
Posts: 1,708
I don't think there is any obvious right or wrong answer here. Assuming you can deduct the interest on your home equity loan, the net interest rate is probably about the same or slightly lower than your PenFed CD. But the 3% CD rate is no longer available, so if you take out the money from it, you won't be able to reinvest it into a CD at the same rate in current market conditions.

If you think there is a good likelihood that you can repay the home equity loan in less than five years, I'd probably lean that way just to protect the CD rates you have.
__________________

__________________
Ready is online now   Reply With Quote
Old 08-15-2016, 09:14 AM   #3
Thinks s/he gets paid by the post
Big_Hitter's Avatar
 
Join Date: May 2013
Location: In the fairway
Posts: 4,000
that's a lot of scratch for a room addition - I'd see if you could work in some sort of trailer without breaking any deed restrictions
__________________
Swing hard, look up
Big_Hitter is online now   Reply With Quote
Old 08-15-2016, 09:28 AM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
harley's Avatar
 
Join Date: May 2008
Location: Following the nice weather
Posts: 6,227
Quote:
Originally Posted by Big_Hitter View Post
that's a lot of scratch for a room addition - I'd see if you could work in some sort of trailer without breaking any deed restrictions
The OP is in Chicago, so I don't think $40K for an addition is very high at all. It all depends on where you are. When we were in the DC area estimates for a relatively small addition were coming in at $75 - $100K (we didn't do it). Out here in the boonies of the Eastern Shore, it would be closer to the $40K mentioned.

I'd go with the loan. No way I'd refi the mortgage. Cash out refi's have much higher rates and costs. Either pay cash or take the loan.
__________________
"Good judgment comes from experience. Experience comes from bad judgement." - Will Rogers
DW and I - FIREd at 50 (7/06), living off assets
harley is online now   Reply With Quote
Old 08-15-2016, 10:42 AM   #5
Administrator
W2R's Avatar
 
Join Date: Jan 2007
Location: New Orleans
Posts: 38,215
Quote:
Originally Posted by Big_Hitter View Post
that's a lot of scratch for a room addition - I'd see if you could work in some sort of trailer without breaking any deed restrictions
I agree, especially given that this is 10% of your entire portfolio. Even buying my Dream Home didn't drain my portfolio by a net 10%.
__________________
Always be yourself, express yourself, have faith in yourself; do not go out and look for a successful personality and duplicate it.

― B. Lee








W2R is offline   Reply With Quote
Old 08-15-2016, 10:55 AM   #6
Full time employment: Posting here.
 
Join Date: Mar 2010
Location: Chicago
Posts: 832
Quote:
Originally Posted by W2R View Post
I agree, especially given that this is 10% of your entire portfolio. Even buying my Dream Home didn't drain my portfolio by a net 10%.
Thanks, W2R it is a lot but our living expenses are taken care of with my pension and DW social security.
__________________
ripper1 is offline   Reply With Quote
Old 08-15-2016, 11:03 AM   #7
Recycles dryer sheets
Newventurer's Avatar
 
Join Date: Sep 2012
Location: in the sticks
Posts: 237
Quote:
Originally Posted by ripper1 View Post
Hello everybody. I am having somewhat of a brain freeze as to how to pay for a room addition which is going to cost us 40k. Even though we have the cash it would amount to about 10% of our investments. A home equity loan for 5 years through PenFed has a fixed rate of 4% and no closing costs. Our cash part of our investments are in PenFed CD's earning 3.06% and our mortgage has a rate of 3.375% so I don't want to do a cash out refi and mess with that rate besides there would be closing costs involved. I'm just thinking with rates so low right now that maybe we should use other peoples money. Thoughts. Thanks.
Don't know if this would apply to you or not but one thing to consider is the tax treatment of the improvements. Around here you lose your over 65 fixed tax rate if you do improvements on your home. They ramp it up to the current mil levy, of course on an increased value.
__________________
Newventurer is offline   Reply With Quote
Old 08-15-2016, 11:04 AM   #8
Thinks s/he gets paid by the post
RunningBum's Avatar
 
Join Date: Jun 2007
Posts: 4,678
Quote:
Originally Posted by Ready View Post
I don't think there is any obvious right or wrong answer here. Assuming you can deduct the interest on your home equity loan, the net interest rate is probably about the same or slightly lower than your PenFed CD. But the 3% CD rate is no longer available, so if you take out the money from it, you won't be able to reinvest it into a CD at the same rate in current market conditions.

If you think there is a good likelihood that you can repay the home equity loan in less than five years, I'd probably lean that way just to protect the CD rates you have.
CD interest is fully taxable, so there's no way a higher loan interest rate is going to work out to be the same or lower than the CD even if it is deductible.

But if you have any investments at a loss or very little gain I might sell those to pay for it. Otherwise I'd probably do the home equity loan and pay it off with the CDs when they mature.
__________________
RunningBum is offline   Reply With Quote
Old 08-15-2016, 11:47 AM   #9
Thinks s/he gets paid by the post
Sunset's Avatar
 
Join Date: Jul 2014
Location: Chicago
Posts: 4,109
Does your existing mortgage count as an itemization tax thing, or do you currently take the standard deduction, if you itemize, then taking a loan will be less than the full interest rate.

I have relatives in the area, they did a FL room, it's not used as much as they thought/dreamed so it became a storage room. Now they are talking downsizing.
Hopefully you will use it a lot, and not move for 10 years...
__________________
Sunset is online now   Reply With Quote
Old 08-15-2016, 12:16 PM   #10
Full time employment: Posting here.
 
Join Date: Mar 2010
Location: Chicago
Posts: 832
Quote:
Originally Posted by Sunset View Post
Does your existing mortgage count as an itemization tax thing, or do you currently take the standard deduction, if you itemize, then taking a loan will be less than the full interest rate.

I have relatives in the area, they did a FL room, it's not used as much as they thought/dreamed so it became a storage room. Now they are talking downsizing.
Hopefully you will use it a lot, and not move for 10 years...
Yes, we do have itemize and we are in our early 60's and consider this to be where we can hopefully live out the rest of our days. We have a small but growing family and this place (ranch) definitely had to get a little bigger. Besides we have been kicking ourselves for not doing it at construction five years ago.
__________________

__________________
ripper1 is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Cost Saving- Furnace & Central A/C v. Room Heater/Electric Blanket & Room A/CUnit-Fan nico08 FIRE and Money 4 01-08-2012 10:52 PM
into the room they come and go... tozz Other topics 16 08-30-2005 10:22 AM
Room 402 dory36 Other topics 2 05-20-2005 01:44 PM
'Son with a spare room' safe withdrawal rate intercst FIRE and Money 16 07-02-2004 10:41 AM

 

 
All times are GMT -6. The time now is 10:47 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.