I am replacing my back deck with a composite deck costing $27,000. I already paid for $7,000 so $20,000 left.
It's pretty close to a "need" at the point as keeping the old deck up is costing me ~$2,000 a year and it's getting worse every day.
I don't have any debt other than my house.
I have $40,000 in a HYSA and $120,000 in a mutual fund (not retirement money).
I REALLY like having the large HYSA as its SWAN (sleep well at night money) but it probably makes more sense to pay for the rest of the deck out of pocket.
I am set up to sign for a HELOC loan Saturday with the cons being: 1) could lose the house if I default (but I have enough liquid money to pay it off so not going to happen 2) It's a variable interest rate of 5% for six months and 7% after that (but if rates jump up again I have the liquid money so I can pay it off 3) Will reduce cash flow
pros being……well I guess it just keeps my sleep well at night money intact. It's also an interest only loan so I could pay $130 one month and $1,000 the next depending on cash flow situation.
I should probably just take it out of the HYSA and pay myself back interest free.
I don't think taking it out of the mutual fund makes sense as it is earning more interest than the loan interest.
I put a lot value on the SWAN money and would not bat an eye if the rate was 2-4% but I could be looking at $2,500 to $4,500 on interest depending on how fast I pay it off….
Also, I'm going to need a new truck in a few years….which will suck…maybe I should save the financing for that as rates will probably be better on vehicles…..
What y'all think?
I think I know the right thing to do……but looking for a discussion.
byu/TwoHearted313 inpersonalfinance
Posted by TwoHearted313
7 Comments
You’re paying interest to pretend you have more money than you do
If you want to pay extra money to play pretend, well, that’s a choice you can make
HELOC means you generally have access to credit if you need it. If you don’t need it, don’t use it. If you need it, it’s there, and will cost you interest.
So consider this plan:
* Get the HELOC.
* Pay off the deck with cash on hand.
* Use the HELOC as your SWAN.
* Reallocate the budget to rebuild the SWAN fund outside of the HELOC.
Since this is a variable rate loan, the interest should move similar to your HYSA interest rate. So take the difference in interest rates between the HELOC and your HYSA and simulate a $20k loan with that interest rate. Take the total interest you will pay over the life of that loan and add any loan origination fees.That is the cost of the HELOC to you. Is it worth that much to you to have an extra $20k in the bank?
As long as you are cash flow positive on a monthly basis, I recommend pulling from savings and leaving the HELOC for emergencies. You can rebuild that balance over time. But I know what you mean about sleeping easier at night. That is worth something – the question is how much.
I think for the next several months you pretend you have this ‘loan’ and sock money away to pay for it.
Economy is getting worse every day. There may be deals later in the year from contractors. By then will have saved a chunk.
Some contractors will have financing deals. Consider them.
I’d pay out of pocket and repay your savings with an estimate of what you would pay via HELOC. I have done that with recent car purchase and composite deck over the last few years.
Would also consider setting up a house maintenance budget/fund and saving money away there every month to cover scenarios like this in the future
Im looking for a new home now and an elevated deck is an immediate pass for me.
If your home requires the deck to enter/exit a door, I’d recommend redesigning to minimize the size and cost.
The same replacement will be needed in another 25 yrs. Either you’re doing it again, or the people buying your place are including the pending massive repairs in their offer.