Consider yourselves warned - as the title suggests, this is not a fun thread.

Taking full advantage of last Saturday's beatiful weather, I decided to climb up on my roof and remove some of the moss that was growing. I have suspected for much of the last year that my roof might be on its last legs (there have been several smallish sags visible near the top since the end of last spring). Walking around up there confirmed my fears - this summer will be the time to replace it.

My first thoughts were about how I would come up with the money to replace the roof quickly enough to get it done this summer. Then, as I started checking out the rest of the house, I was reminded that my windows are failing (badly), and that I had been thinking about putting a hardwood floor in the living area, replacing the kitchen cabinets.... Long story short (at least by my standards), I ended up at the bank on Monday to find out what options I might have in the way of restructuring my mortgage. The good news is that I left with several reasonable options. The bad news is that none of these options stands out in my mind as the clear best decision. Here is where I start reaching out to any of you who are experienced in such matters for some friendly advice.

What I believe are my best options, and a few of the associated pros and cons, are as follows:

1. Refinance to a new 30-year mortgage, with cash back on closing to cover the repairs/improvements I want to make.
Pros: To do this for the amount of money I need would only increase my current mortgage payment by about $20/month, and because this would be a cash out situation, I would not be faced with any requirements to complete the work on an aggressive schedule.
Cons: Even considering the value added by the improvements, I would still stand to lose as much as $10K in equity, which would limit my ability to move, should I decide to do so, for at least a few years.

2. Refinance to a new 15-year mortgage, with cash back to cover the repairs/improvements.
Pros: I would need to pay only about $275/month more than my current payment to reduce the term of my existing mortgage by 7 years, the repairs would get done, and I would own the house in 15 years, having saved a ton in interest in the process.
Cons: My payment would go up by $275/month. In these uncertain times, that could mean the difference between keeping my house and losing it should anything unthinkable happen.

3. Refinance to a new 30-year mortgage with a TBD sum of cash tied up for home renovations and add on to my tiny home.
Pros: Much-needed space added to the house, happier wife and kids, work all done by contractors and within 6 months.
Cons: Significant (TBD) increase in mortgage payment, restrictions around renovation loans require work to be completed within 6 months (and strictly by licensed contractors, which eliminates cost savings opportunities associated with doing menial work myself), and I end up with the dreaded "nicest house on the block," which becomes a risk (or so the realtors say) when it comes time to sell.

4. Fix the roof, sell the joint, and move.
Pros: New, presumably larger home, in potentially favorable location. With interest rates low, this is a good time to buy.
Cons: Mortgage payment approximately double, ability to move dependent on sale of current home.

It seems to me that all these scenarios accomplish something good, but they also end up costing me money, in some shape or form, in the long run. Do any of you have any advice/experiences to share that might be helpful? And, more specifically, are there any bankers out there who can tell me which options tend to favor lending institutions more than the others?

Thanks as always.

Hard to say which is the "best" option Flea but sounds like #1 would be the smartest although I dont know why you think you will lose 10k in equity right now by going that route? Ask for a low or no cost loan if you think you will be out of the house in less than 3 years, go with a standard, fair fee and lowest rate loan if you intend to stick it out for 3+ years.

Bad time to sell so I would get the most important improvements done ie roof and windows then put the rest together over time as you budget allows...2c.

#1 gets my vote. Gets things done, minimal impact to your cash flow, and it would make your home much more saleable in the future, having those improvements made. Upgrades to the windows might even get you a rebate from your power company.

15 year is the best AM IF you can afford it...he says that any change in circumstances will cause him to possibly not make the payment and therefore hurt his credit and maybe lose the house, which is not a good thing last I checked.

Flea, you can amortize out a 30yr loan to pay off in whatever amount of time you want. If things get tight just go back to your lower 30 yr payment.

As Summerrun stated, you can make the 15yr payment if you can, and then switch to the 30 year pmt if things get tight.

Forget about option #3. Options #1 or #2 are your best bet but without some other information it's hard to give you the best advice.

Whats happens to your debt to income ratio if your payment goes up by $275 on the 15yr note? What's your DTI now?

What do you owe now and how much time left on that mortgage?

What's your current loan to value ratio and what will it be when you refinance?

Whats your current interest rate? What rate are you being offered on the 15yr and the 30yr?

How long have you been at your job? Is it stable? Prospects of a future raise?

I understand those are some personal questions but they're pretty crucial to understanding where you sit and what your best move should be.

Feel free to PM me if you don't want to broadcast that kind of info all over the interwebz.

#1

#1 but pay like you are on #2.

Nice for you to have options, and based on the current market 10k in equity may be actually 1k in equity if you were forced to sell tomorrow.

Thanks to all. I didn't expect this much feedback, and certainly not so quickly.



I understand that some of the work I am planning to do would be considered "maintenance," as opposed to value added improvements. For example, a new roof, while it will look better and may offer some peace of mind to a prospective buyer, does not increase the actual value of a home (or so I have been told). Same thing with the windows (unless I were planning to install some super fancy wooden jobs or something). I assume those items would be valued at something approaching $10K (if I paid for installation). If I do take the plunge, I will probably install the windows myself (saving $2K-$3K?), but I think I would rather pay someone to put the roof on. I actually did some roofing work when I was 16, but I have since apparently developed a fear of heights that I never had in those days. Even sweeping out moss on Saturday made me feel more nervous than I should for any extended period of time. So perhaps I would only be giving up something like $5K in equity on the transaction, but when making financial decisions, I tend to err on the side of the worst case, so I have estimated $10K. If I am making false assumptions here, please feel free to straighten me out (I love being wrong about things I fear).

SW: I will send a PM with some financial details shortly. I don't think I would be exposing anything too significant by posting them here, but to your point, it may not be the safest thing to do.

Thanks again!

I agree with the above suggestions of choosing #1 and make additional principle payments when you can. You are fortunate to have enough equity to pull cash out for the repairs. Selling and moving is exactly what I would love to do right now but that's just not the best move right now. Maintaining/repairing/adding on to your current home (if you're planning on staying in the area) seems to be the best option. At least that's what I would do (and I am working on doing something similar).

Not to add more questions to the mix, but can you get a 20 year mortgage, and if so, what cost does that add? Option number 1, but make payments like option number 2 whenever possible might be best depending on some of your answers to StinkingWater's questions above.

I'm always a fan of #4, but I don't things have bounced back quite well enough yet. I'd only bail out if you got the roof of and discovered your house is rotten to the core and you need to get out before it turns into a money pit.

I'm keeping up on my maintenance and upgrades to keep it competitive with it's comparable sales in this area and just sort of keeping up appearances & bidding my time before I can get out what I've put in.

You think a new roof is spendy, go get a couple estimates on new windows.

Yes you can and it shouldn't add a dime to the cost of the loan other than your typical closing fees. Not every bank will offer a product set with a 20yr am but there are some that do,.....most should.

In fact, your rate on a 20yr should be slightly less than a 30yr and slightly more than a 15yr.

I have considered 20 year options, and they are not bad, but most banks are offering the same rates on 20-yr. as 30-yr. right now. There is one bank I found offering a slightly lower rate on a 20. I probably should check into that. Good thought!

Why add to your payment when you could accomplish the very same thing by makiing extra principle payments? You still have the 30 year payment in tight times and there won't be enough of a break in the rate to get the 20 year IMO. That is why a lot of banks don't offer it.

I got a new roof and windows in the same year and paid less for the windows. Pays to do homework.

I agree, CP. I have been thinking along those lines all along, but I thought I should pose the question to a few others to see if there might be something important missing in that logic. So far, yours seems to be the consensus opinion.

Considering the human nature we all possess, I can see a few advantages to going with a 15-yr. For example, it takes the choice of whether or not to pay down principal aggressively out of my hands, which is probably a good thing, considering my uncanny ability to find any excuse to dispense with expendable income by some means besides that which is most responsible. Most of us tend to live for the day. Most ways, that is a good thing. However, the older I get (and the closer my kids get to college age), the more attractive opportunities to prepare for my financial future are becoming. Assuming that my home, wherever it happens to be, may be my only significant cash resource when it comes time to send them off, it would seem to be in my best interest to have as much equity in it as possible.

Of course, there is also the matter of the amount of interest a person stands to pay over the life of a loan to consider. In my case, assuming I made only minimum payments for the life of the loan, I would stand to save over $50K by going with the 15-year. Nothing to sneeze at.

Most likely, I will end up going with a 30-yr. loan, for exactly the reason you stated. My only hope is that I can find the restraint to hold on to enough extra money to beef up my monthly payments, at least some of the time. They say that making just one extra payment per year on a 30-year mortgage turns it into an 18-yr. mortgage. Imagine what making two extra payments per year could do....

Number one is probably best. Act fast as the construction field is starting to move a little and prices could go up, especially as summer is coming. Right now prices on labor and material should be down if you look around. From my builder, window prices are way down right now.
I
f you are planning to move in the near future, then my advice changes, but only if you have equity. While it may seem bad to sell when prices are down, remember, everything is relative. Since the higher end houses are having a harder time selling, you should see a higher drop percentage wise on them then on your lower priced homes. In addition, you will pay less on any loan fees, excise taxes, any real estate fees, etc. since they generally are a percentage of the sales price.

Another great option is looking at a builder repoed lot and making a low offer to the bank. Since elma is a small town, a lot of the options available other places might not be available there. In my market area we are seeing lots coming from the bank at 30% of the price 2 years ago, cheaper than what the development costs would be. Add in lower construction costs and you can build fairly cheap.

Its great in theory... but there will always be that rod or reel that will take precedence over an extra payment... I went with the 15 year option and will own my house in 8 more years... I would be looking at 23 more years had I gone with the 30 and the extra payments I probably would not have made...




WTF, if you are paying that much interest you must own the Gates Manor... who new that BWP was really Bill Gates