My wife and I have opened and closed a home equity line of credit a couple of times since buying our home in 2003 for improvements and short-term funding of our businesses. Overall, the 5% rate is decent in comparison to the average 10% increase in annual equity, but what if we could improve the rate of return from money borrowed?

If the Fed maintains low interest rates, the advantage is ours.

A few months ago, we decided to refinance our home. Valued at $800,000 with $150,000 owing at 4.25%, it made sense for us to get a conventional 30-year cash-out re-fi at 2.675%. At the time, the maximum loan for the lowest points was $560,000. The loan was processed without an appraisal and some of the fees were even waived. This meant that roughly $400,000 cash could be pulled out of the house for re-investment. The best part is – even if it was put under the mattress, we would still be money ahead. Predictions for home values in our area are to continue to climb at a minimum rate of 8% per year. The Seattle area was just published as having been among the top 3 fastest growing home values in the country at 12.7% over last year.

So what does this mean for remodeling your home?

Treat your remodeling project like purchasing a house/boat/car. If you are pre-qualified and have the cash on hand, you will be better suited for getting the thing you want. First determine a realistic budget for design + construction + sales tax + engineering + permit fees by first speaking with a couple of Design/Build contractors. Then consider the debt/equity ratio in your home. If the net proceeds make sense to fund the improvements – and the monthly mortgage payment is actually lower than before – then hurry to get your improvements built before costs go up.

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