Adjustable Rate Refi questions, or heloc?

[Sporin]

Had gone into this looking to do a HELOC to do some home renovations, square up some debt, etc.

Called ING and they are pushing Refi instead, 7/1 at 3% (2% per year cap on rate adjustment for a grand total of 6% total adjustment).

Their HELOC would be a straight 4% on what we use of it. Same with local banks.

Full, 30-year fixed refi with another lender would be in the 3.5% range. But again, I hadn't really been thinking refi as we refi'ed a few years back to 5%, 30yr fixed.

We bought the house cheap 13 years ago and have put a bunch of work into it, and the current value is about $80k (conservative estimate) more then we owe on it now.

I'm a bit out of my depth though because I've always done 30-year fixed rates. Trying to avoid the adjustment nightmares I've read about in the past.

Their sell is that I'll have a lower total payment if I do it this way over the next 7 years then I do now and it will be a single loan, not the current mortgage plus HELOC payments. I'll also pay an extra $20k± off the note this way vs. the same 7 years at my current rate. They also point out that I can refi to a fixed rate loan in 7 years if I want.

Wife and I are both leery about adjustable rate horror stories.

Chances of moving in the next 7 years? maybe a 8 out of 10. We've been talking about it for a while but nothing concrete, mostly because we can't get anywhere near what we have now without spending twice as much.

Thoughts? Advice?

[GeoffD]

You're about half-way through a 30-year mortgage. Why not do a 15 year fixed, pull the extra cash out to do your home improvement, and more or less keep the payment the same?

Variable rate mortgages only make sense when interest rates are extremely high. With rates at historic lows, it's nuts not to take advantage of them.

[Sporin]

Yeah, I've been doing some reevaluating the last day or 2, going to stand pat for a bit and keep thinking about it.

Thanks!

[ChrisMD]

You're about half-way through a 30-year mortgage. Why not do a 15 year fixed, pull the extra cash out to do your home improvement, and more or less keep the payment the same?

He refinanced a few years ago so he's actually not half-way through his current 30yr mortgage but I was still going to recommend running the numbers on the 15 anyway. But whether it's a 15 or 30, I'd say refinance again instead of using HELOC, which is a higher rate, still variable, and could cause big problems later if, god forbid, you run into problems. I'd also stay away from the 7/1.

[Sporin]

He refinanced a few years ago so he's actually not half-way through his current 30yr mortgage but I was still going to recommend running the numbers on the 15 anyway. But whether it's a 15 or 30, I'd say refinance again instead of using HELOC, which is a higher rate, still variable, and could cause big problems later if, god forbid, you run into problems. I'd also stay away from the 7/1.

That's my thinking at this point, yeah, I've refi'd multiple times, cashing out and reinvesting in the house which is why it's worth, even on today's market, more then twice what I bought it for. We were actually on a 15-year fixed for a number of years but reset to a 30 again to do major reno (kitchen, boiler, asbestos removal, etc.)

I've talked myself out of an adjustable at this point and I think the plan at this stage is to look at locking in a fixed 30 lower then our current 5% and just stand pat.