Home Addition - Financing Options

[Andrew Rascoll]

Hi, my fiance and I own a home in NJ and are looking to add an addition over the garage.  Let's assume the total cost of the work will cost 50-70k (quotes pending).  The home was purchased for 580k 2 years ago, is currently valued (according to Realtor/Zillow etc) at 750k, and we owe 450k still.  We love the home and definitely don't plan on moving in the next 5-7 years, and depending on the space added, can see ourselves living here for 20. 

I would normally consider taking out a heloc for this but: 1. Our mortage company doesnt offer them. 2. Rates from other lenders seem high (+7%)  right now.

Our current mortgage rate is 3.17 and we recently/coincidentally got a letter from them saying we can cash out refinance of 90k and the interest rate would be moved to 4.2% (30 yr fixed).  

Would you suggest:

1. Paying all cash

2. Finding a heloc and paying high interest rate

3. Refinancing based on the figures sent from our mortage broker in the letter

4. Combination of the above in some way.

5. Selling the house and buying a new home that has what we want, but would be at about 900k.

[Roman Soltinschi]

I'm about in the same situation, looking to do a garage conversion into ADU. It looks like refinancing is the worst option- you'll have to go through all the shenanigans again as you'd buy a new home as well as cover all the costs- appraisal, title, closing on THE NEW TOTAL AMOUNT.

HELOC rates today seem to be in the 8-s, anyways HELOC is an adjustable rate mortgage and will fluctuate up and down depending on the market rate. Two months ago my credit union offered HELOC for 4.25%, today is 8%. However I'd use a HELOC only if I'd be sure I can pay it back with interest in less than a year. Beside that, HELOC is a revolving line of credit like a credit card so if you pay it back and couple years later your wife will decide that you need to build a sunroom (and trust me, she will) or put some money down on an investment property you'll have the HELOC money ready for action.

If you have all that money available in cash or stocks that would seem to be the easiest way.