0:00

Elizabeth, have you peaked

0:02

yet? Have I peaked? No, my best

0:04

days are ahead of me. But have

0:06

you peaked at your 401k balances?

0:08

Sean, also no, because their best days

0:11

are ahead of them too. Okay,

0:13

you know, that's a good way to think about

0:15

it. But today we're going to hear some coping

0:17

strategies for when stock market madness starts to keep

0:19

you up at night. Welcome

0:25

to NerdWallet's Smart Money Podcast, where you send

0:27

us your money questions and we answer

0:29

them with the help of our genius

0:31

nerds. I'm Sean Piles. And I'm

0:34

Elizabeth Ayola. This episode, we're answering

0:36

a listener's question about the pros and

0:38

cons of home equity loans. But first, our

0:40

weekly money news roundup, where we break

0:42

down the latest in the world of finance

0:44

to help you be smarter with your

0:46

money. One of the ways to be smarter

0:48

with your money is to ignore it, or

0:51

at least parts of it. The recent

0:53

wild fluctuations in the stock market

0:55

is one example. Yeah, it's

0:57

been a wild ride, and that

0:59

ride is most likely not over

1:01

yet. We've been here before. We'll

1:03

be here again. And yes, some

1:05

of the most basic advice is

1:07

to not look at your 401k

1:09

balances, or 529s for that matter.

1:11

But that doesn't mean that you shouldn't

1:13

be paying attention. Our news

1:15

colleague, Ana Helhosky, is here

1:18

with more. Ana, you're

1:20

going to help us out here, right? Bring

1:22

us some sage advice on how to

1:24

keep on keeping on in our

1:26

retirement and college savings account. Well,

1:28

I'll give it a shot. And I'm joined

1:30

by fellow nerd Sam Taub, who covers

1:32

investing for us. Welcome back, Sam. Great to be

1:34

here. Let's start with the obvious question. Can

1:36

you look into your crystal ball and

1:38

tell us when the market madness is going

1:41

to stop? Of course. And then we'll

1:43

both be millionaires. Ah, perfect. Yep.

1:45

With regard to tariffs, the uncertainty

1:47

is a big part of why

1:49

markets are whipsawing up and down

1:51

so dramatically over the last month.

1:53

No one really knows how far

1:55

tariffs will go or when we've

1:57

arrived at the final tariff program.

1:59

Things keep changing. For

2:01

example, the Mexico and Canada

2:03

tariffs were announced and then

2:05

they were delayed and then they were

2:08

implemented and then they were partially scaled

2:10

back. All right, fine. Since we can't look

2:12

into the future, let's do a little bit

2:14

of an explainer instead. Can you talk to

2:16

us about why stock markets worldwide freaked out

2:18

in the wake of the tariff announcements? Tariffs

2:21

are taxes on imports, and

2:23

we import quite a lot of

2:25

stuff. They may raise production

2:27

costs for businesses, which would

2:29

be bad for the stock market

2:31

because it would hurt corporate earnings.

2:33

But tariffs may also be passed

2:35

on to consumers in the form

2:37

of higher prices. In other

2:39

words, they could juice inflation. That

2:42

would be unfortunate in its own right. And

2:44

it could also complicate the Federal Reserve's plans

2:46

to lower interest rates, which is something

2:48

the stock market has kind of been counting

2:50

on for a while now. Sam,

2:53

can you give us some perspective

2:55

on just how manic this market

2:57

is right now? Is it 2008

2:59

financial crisis wild or 2020 pandemic

3:01

wild? This might not age well, depending

3:03

on when people are listening to this

3:05

episode. But this tariff volatility so

3:07

far isn't nearly as bad as

3:09

either of those things, at least

3:11

not yet. 2008 and

3:13

2020 both saw severe bear

3:15

markets in all the major stock

3:18

indexes. And for reference, a

3:20

bear market is when an index

3:22

falls 20 % or more from a

3:24

recent high. For now, the

3:26

NASDAQ is in bear market

3:28

territory, but the S &P 500 and

3:30

the Dow Jones Industrial Average haven't

3:32

gotten there yet. What's an average investor

3:34

to do in a time like this?

3:36

I've seen all kinds of advice out

3:38

there and some of it the tried

3:40

and true. If you're not retiring the

3:42

next five years, just don't look at

3:45

your account balances and let history take

3:47

its course. But some of it is

3:49

also sounding alarms about how the Trump

3:51

administration is trying to remake the global

3:53

economy and that we're in uncharted territory

3:55

where the old rules and historic record

3:57

might not apply. Help us out here. This

4:00

tariff news has brought up

4:02

fears of a stock market

4:04

downturn, or maybe even a

4:06

recession, or higher inflation, and

4:08

yeah, it's enough to make anyone feel a

4:10

little helpless. But zooming

4:13

out from investments for a second, one

4:15

way to gain a sense of control

4:17

is just to take some basic steps

4:19

to make your personal finances more resilient. That

4:22

might mean trying to build up an

4:24

emergency fund with three to six

4:27

months of living expenses. which can

4:29

act as a cushion against

4:31

a job loss, or it might

4:33

mean paying down high -interest debts. For

4:35

example, credit card debts, whose APRs are

4:37

often quite a bit higher than any

4:40

kind of realistic rate of investment return.

4:42

That's another good way to get ready

4:44

for anything. And are there any

4:46

sectors of the investing world that haven't taken

4:48

a hit, or at least as big

4:50

of a one as, say, the Dow or

4:52

the S &P have? And if so, does

4:54

that mean we should all pile on

4:56

that bandwagon? Paradoxically, international

4:58

stocks have actually held

5:00

up pretty well, because many

5:03

publicly traded companies in

5:05

other countries do most of

5:07

their business in that country and aren't

5:09

super exposed to trade with the US.

5:12

As a result of that,

5:14

there are a lot of ex

5:16

-US ETFs out there, funds that

5:18

exclude US stocks and just

5:20

contain international stocks, that are

5:22

actually up for the year while the S &P

5:24

500 is down. Also, Although

5:26

there have been some recent headlines

5:29

about treasury bond prices being volatile,

5:31

many bond ETFs have also

5:33

held up better than U .S.

5:35

stocks. One advisor I

5:38

spoke to recommended that retirees

5:40

in particular should look

5:42

into bond ladders. These

5:44

are sets of bonds

5:46

with staggered maturities that

5:48

you invest in, and they

5:50

provide monthly or annual cash

5:52

flow. which can then

5:54

be reinvested or withdrawn and spent.

5:57

Bond ladders can cushion retirees from

5:59

needing to sell stocks at a loss

6:01

if they need money. But to

6:03

answer your second question, no, just

6:05

because certain investments are holding up better

6:07

than others doesn't mean that we

6:09

should all pile into those investments. The

6:11

US stock market looks pretty scary

6:14

right now, but it's worth holding on

6:16

to some US stocks for diversification

6:18

purposes. This might be optimistic,

6:20

but there's still some chance we could...

6:22

back down from all this tariff

6:24

business, in which case the current volatility

6:26

could retrospectively look like a great

6:28

opportunity to buy the dip. All

6:30

right, that was really helpful. Thanks so much,

6:32

Sam. Thanks for having me on. And thank

6:34

you, Ana. Yeah, thanks, Sean. Up

6:37

next, we have a listener's question about

6:39

home equity lines of credit. But

6:41

before we get into that, a

6:43

reminder, listener, to send us your

6:45

money questions. Leave us a

6:47

voicemail or text us

6:49

on the Nerd Hotline

6:51

at 901 - 730 -6373.

6:54

That's 901 -730 -NERD. Or

6:56

email us at podcast

6:58

at nerdwallet.com. And we

7:00

have an exciting announcement before we move

7:02

on. We're running another book giveaway

7:04

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7:06

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7:08

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7:13

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right, let's get to this episode's money question

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vote .webiawards.com. We're

9:20

back and answering your money questions

9:22

to help you make smarter financial

9:24

decisions. Now, this episode, we're joined

9:26

by Irene, a listener with some

9:28

questions about the pros and cons

9:30

of home equity borrowing and the

9:32

best way to fund home improvements.

9:34

Welcome to Smart Money, Irene. Hi,

9:36

I'm so happy to be here.

9:38

We're excited. It's going to be

9:41

a great chat. And I'm

9:43

also joined by NerdWallet Mortgages writer,

9:45

Kate Wood, to help me answer Irene's

9:47

questions. Welcome back to Smart Money,

9:49

Kate. Thank you so much for

9:51

having me back. Let's get the conversation

9:53

started. So we're going to start with

9:55

a little icebreaker for you, Irene. Now,

9:58

if you had to describe your current

10:00

financial situation in one word, what would

10:02

it be and why? Oh, I'm

10:04

going to say growing just

10:07

because. Not necessarily that

10:09

our, I mean, our money hopefully

10:11

is growing, but I have been

10:13

growing a lot in just the

10:15

education of our finances. A lot

10:17

of that is thanks to y 'all's

10:19

podcast. It's been incredibly helpful and

10:21

just teaching me really some financial

10:23

basics that I've never learned before.

10:25

And so my husband and I

10:27

have just kind of been on

10:29

this financial journey trying to grow

10:31

in our... knowledge of what our

10:33

money is doing and how to

10:35

make it work for us. I

10:37

listened to the episode on what

10:39

is a recession and things like

10:41

that, just overall money concepts too. Oh,

10:44

I love that. And because finances are

10:46

a journey, I think you're always growing.

10:48

So it sounds like you're in a

10:50

good spot. Yeah. Let's dig into your

10:52

financial situation. So tell us some basics

10:54

about your financial life generally. What's going

10:57

well? Where do you think you have

10:59

more room to grow? What's going well

11:01

is we've done some things that I

11:03

feel like are really positive steps forwards

11:05

in our finances. Like we just recently

11:07

opened a 529 accounts for our boys.

11:10

We have two young boys. And so

11:12

that's something we've been meaning to do

11:14

and just hadn't for years. So we

11:16

just opened those accounts for them. And

11:18

we did like a grocery challenge in

11:20

February. So yeah, I think that's going

11:22

well for us to kind of do

11:25

more research. make some really positive moves

11:27

that'll help us in the future. And

11:29

then also in the current situation with

11:31

our budget, just trying to be more

11:33

mindful of our spending. And in places

11:35

we can grow, I would say just

11:38

saving in general, if we're sticking to

11:40

our budget and then what we get

11:42

post taxes in our bank account each

11:44

month from our work, we should have

11:46

about a $3 ,000 buffer. However, saving

11:48

even $1 ,000 of that feels really challenging

11:51

month to month because inevitably things come

11:53

up. For example, this past month, one

11:55

of our family members was in the

11:57

hospital and we're getting those hospital bills

11:59

and it's like $1 ,500. So it

12:01

feels really hard to save. I can

12:03

relate with that challenge, especially in this

12:06

economy. So speaking of savings, what are

12:08

your savings like? How much do you

12:10

all have saved currently? So right now

12:12

we have a total of $40 ,000 in

12:14

our savings. And that's with $25 ,000

12:16

in a high yield savings account. Thanks

12:19

to you guys. We didn't even know

12:21

about those until, you know, we started

12:23

listening to your podcast. And that gets

12:25

4 % interest. And then $15 ,000 is

12:27

in our just bank savings account. And

12:29

then I'm curious to know in terms

12:31

of your savings, does that cover three

12:34

to six months worth of expenses? About

12:36

three if we're spending like we normally

12:38

do. Our monthly budget is about $13 ,000.

12:40

And so, yeah, if we weren't cutting

12:42

back on anything, we should have for

12:44

three months, $39 ,000. And just for

12:47

context, my husband works full time and

12:49

then I work part time. I work

12:51

just two days a week. Now let's

12:53

move on to your debt. Do you

12:55

have any debt at the moment? We

12:57

do. We have our mortgage. So we

12:59

own a home and we have a

13:02

mortgage on that. And then my husband,

13:04

we have student loans from him going

13:06

to law school. So we owe

13:08

about $37 ,000 on student loans. But

13:10

other than that, that's it. So

13:12

just the mortgage and the student loans,

13:14

we don't have credit card debt or

13:16

a car payment. And just for interest,

13:18

what do you and your husband

13:20

do? What are your occupations? So my

13:23

husband is an attorney for a tech

13:25

company, and then I am a speech

13:27

pathologist in the public schools. Okay, great.

13:29

So now we're actually going to

13:31

go into the conversation about what you

13:33

wrote us about, which is home ownership.

13:35

So talk to us a little bit

13:37

about your home ownership journey. So

13:39

we bought a house, I guess, two

13:41

summers ago. It was a total fixer

13:44

-upper. We bought it off the market.

13:46

It was in need of a lot

13:48

of help. So we put about $100 ,000

13:50

into just making it really a livable

13:52

space. So that wasn't even adding on

13:54

to the house. That was gutting it.

13:56

and redoing most of the interior of

13:58

the house. But it is a small

14:00

house in a very expensive part of

14:02

California. And so, you know, the cost

14:04

of living is high. We paid a

14:06

lot for the house. I think it

14:09

was a really good investment. We

14:11

are in a great location, have a

14:13

great view, but it's a one bathroom

14:15

and three bedroom. So it's tiny and

14:17

we are a family of four. And

14:19

so we definitely see in our future

14:22

adding on to the house minimally. a

14:24

extra bedroom and bathroom, but possibly more

14:26

than that. We have family who live

14:28

out of state. So, you know, big

14:30

goal for us would be eventually one

14:32

day adding maybe even a back unit

14:34

so that they have some place to

14:36

stay or like maybe adding two bedrooms

14:38

and two bathrooms. All that's negotiable. But

14:40

just for our family on day to

14:42

day living, we live in a pretty

14:44

small space. So, yeah, that's kind of

14:47

our ultimate goal is to add on.

14:49

Well, an ADU is an amazing goal

14:51

to have. That's definitely a fun extra

14:53

and that's really helpful context. So since

14:55

I am a mortgages nerd, is it

14:57

okay if I ask you a couple

14:59

of questions about the mortgage? Yes, I'll

15:01

do my best to answer them. Okay.

15:04

One is, do you know what kind of home loan you

15:06

have? E. I

15:08

do not. Do you want me to go ask

15:10

my husband really quick? my goodness. No, no, no.

15:12

You do not need to do that. If you

15:14

don't know, it is most likely that you have

15:16

a conventional loan. That's just basically

15:18

a normal mortgage. definitely didn't do one of the

15:20

like special ones or if you're like a

15:23

first time home buyer, we didn't do one of

15:25

those. Okay. So basically conventional loan. And

15:27

since you bought the home. just

15:29

two years ago. Do you remember how

15:32

much of a down payment you

15:34

made in terms of a percentage of

15:36

the purchase price? I want to

15:38

say the house, we bought it for

15:40

like around $800 ,000 and we put

15:42

down, I want to say $100 ,000,

15:44

but I really can't remember because

15:46

of the fact that we held some

15:48

back for renovations. Actually, he did

15:50

tell me, he's told me that what's

15:52

left on the mortgage, he thinks

15:54

is like about $726 ,000, something like

15:57

that. So we definitely didn't put $100

15:59

,000 in. Okay. Okay. That makes sense.

16:01

So in terms of equity, our

16:03

best guess based on what you said

16:05

is that you have not a

16:07

ton of equity, but given that you've

16:09

described that you are in California,

16:11

you've got this amazing location, this and

16:13

that. Clearly, if you bought a

16:15

home in the past couple of years,

16:17

you're very aware that the real

16:19

estate market there is very much alive,

16:22

very vibrant, very much a seller's

16:24

market. Prices, home values have been

16:26

going up. So it is possible that

16:28

if you got the home appraised now,

16:30

that it's going to appraise for higher

16:32

than what you bought it for, also

16:34

because you did the renovations on it,

16:36

right? Bringing it up to date. And

16:38

simply if home values have appreciated in

16:40

your area, so you might have more

16:42

equity than you initially might seem to

16:44

have. And that kind of leads into

16:46

the obvious question of, okay, so we

16:48

have all these amazing home renovation goals.

16:50

How are you thinking about funding them?

16:52

Yeah. And that's really my question for

16:55

you guys, because I'm kind of going

16:57

back to my goal of saving. I've

16:59

kind of made a low ball goal

17:01

of saving a thousand dollars a month.

17:03

I was like, this is a good

17:05

starting point. You know, a couple of

17:07

months ago, I feel like that's attainable.

17:09

But if we're going with that, you

17:11

know, we'll have enough money to do

17:13

a renovation in like 10 years. And

17:15

so as far as funding it, I'm

17:17

curious. If

17:19

there's any creative ways we can

17:21

leverage the house as an asset,

17:23

ideally funding it with cash would

17:26

be great. That just seems like

17:28

such a lofty goal right now.

17:30

One of the ideas we have

17:32

and that our contractor, when she

17:34

was redoing the interior the house

17:36

mentioned, is we could take the

17:38

garage space and either just simply

17:40

renovate that or build on top

17:43

of it ballpark. She said, you

17:45

know, maybe $100 ,000 to $150 ,000. And

17:48

if there is one thing I have learned

17:50

with home renovations, it's so often more than

17:52

that. You know what I mean? Like you

17:54

get, yeah, the quote you think, what you

17:56

think it's going to cost is so often,

17:58

yeah, double that. So what I'm thinking is

18:00

like, we would need about 150 ,000 to

18:02

do it. And that feels like a really

18:05

lofty goal as far as savings goes. I

18:07

understand that. So Irene, I want to ask

18:09

you, what are your thoughts in terms of

18:11

how to fund it? So there are three

18:13

primary ways. Of course, there are more, but

18:15

three primary that you could fund your home

18:17

renovations. And one is through a home equity

18:19

loan. You could also do a home equity

18:21

line of credit or a cash out refinance.

18:24

So what are your thoughts in terms of

18:26

how you want to fund this home renovation

18:28

or what have you been exploring? We've kind

18:30

of been exploring all three of those. Something

18:32

that I would love for you guys to

18:34

help me with is just understanding. the

18:36

pros and cons of those

18:38

options. Because I think

18:41

my fear is we enter into

18:43

something like a home equity loan

18:45

and it's what we need in

18:47

our current stage of life. But

18:49

in 10 years, we regret that

18:51

we did that because it results

18:53

in us kind of making an

18:55

unwise financial decision. Kate, do

18:57

you want to talk through the different ways

18:59

of financing a home renovation? Sure.

19:01

So just to be clear, there are

19:03

tons of ways of financing a home

19:05

renovation. Right now, though, we are talking

19:07

about different ways of doing it by

19:09

leveraging your home equity. And if you

19:12

are talking about something that's on that

19:14

six -figure scale, that's the kind of borrowing

19:16

you're really looking to probably do, right?

19:18

Clearly, $150 ,000, you're not going to

19:20

put on a credit card. For that

19:22

much money, too, a personal loan, the

19:24

interest rate probably would not be all

19:26

in your favor. But in terms of

19:28

these three options, so we've got cash -out

19:30

refi, We've got home equity loan and

19:32

then home equity line of credit. We

19:34

can just say HELOC. Cash out refinance,

19:37

I can tell you right now, there's

19:39

a high likelihood it will be not

19:41

on the table. And that's because of

19:43

where mortgage rates are. So if you

19:45

bought a couple years ago. there's

19:47

a good chance that today mortgage rates are

19:49

higher than when you bought it. So with a

19:51

cash out refinance, you're refinancing the home, so

19:53

you're getting an entirely new mortgage. That means a

19:56

new everything, new term, new interest rate, all

19:58

of it. You take out a loan for more

20:00

than the home is worth, and then you

20:02

get the difference in cash at closing between the

20:04

home's value and how much you still own

20:06

on the mortgage. So that's kind of where your

20:08

cash out is coming from. So

20:11

when we're in an environment where interest

20:13

rates are really low, this is appealing

20:15

to people because they can get cash

20:17

out and at the same time they're

20:19

lowering their interest rate, right? But when

20:21

interest rates have gone up, one, no

20:23

one's like looking to increase their interest

20:25

rate, but increasing your interest rate on

20:27

an even larger loan is kind of

20:30

like, you're just making bad worse there.

20:32

So for a lot of people, cash

20:34

out refi is not going to be

20:36

an option. And again, you know, that's

20:38

going to depend what the interest rate

20:40

on your primary mortgage is. But kind

20:42

of broadly right now, cash out refi

20:44

is just not going to make sense

20:46

for a ton of people. Yeah, I'm

20:48

not positive what our mortgage interest rate

20:51

is, but I want to say it's

20:53

like 6 .9, just for reference, I

20:55

think. That's not terribly far off the

20:57

kind of rates we're seeing right now.

20:59

Something else to consider also is that

21:01

cash -out refis generally have higher interest rates

21:03

than if you were to just do,

21:05

say, a rate and term refinance. Because

21:07

it's that much larger of a loan

21:09

for the mortgage lender, it's a little

21:12

more risky. They're going to reflect that

21:14

in the interest rate you're offered. So

21:16

really, unless it's a low -rate environment,

21:18

cash -out refi is probably not it. All

21:20

right, Kate. So since that is not

21:22

a very maybe viable option for many

21:24

people, let's talk about HELOCs and home

21:26

equity loans. HELOCs and

21:28

home equity loans have some similarities, have

21:31

some differences. One big similarity,

21:33

though, that fits into what I was

21:35

just talking about is that both

21:37

of them are types of second mortgages.

21:39

So it is a separate loan

21:41

from your current mortgage. That means... there's

21:43

anything you don't want to touch about

21:45

your current mortgage, interest rate, term,

21:47

whatever it is, you don't have to.

21:49

This is just a completely separate

21:51

loan. That said, each option is pretty

21:53

different. So home equity loans are

21:55

pretty straightforward. You just borrow

21:57

an amount. You get that amount

21:59

as a lump sum at closing. That's

22:01

the whole thing. It's got a

22:03

fixed interest rate that you can pay

22:05

over as much as 30 years.

22:07

So you've got this monthly payment. You're

22:09

just paying it. It's more or

22:11

less how most loans work, right? You

22:13

borrow the money and then you

22:15

pay it back. Where home equity loans

22:17

get tricky is that relatively few

22:19

lenders offer them relative to other home

22:21

equity borrowing options. dozens

22:24

of lenders that we review and research

22:26

at NerdWallet. Cashout refinance, I would say,

22:28

is by far the most common. Most

22:30

lenders that are offering refi offer you

22:32

a cashout option. HELOC comes in second,

22:35

and then home equity loan is like

22:37

a distant third. So if there's interest

22:39

in going down that path, it might

22:41

take a little bit more research to

22:43

find lenders that are actively offering home

22:45

equity loans. So HELOCs are

22:47

more common, but HELOCs are also kind

22:49

of more complicated. So with a home

22:52

equity line of credit, it's a line

22:54

of credit, right? So it's a little

22:56

bit like a credit card in that

22:58

you have your total dollar amount that

23:00

you can borrow up to, but you

23:02

don't have to borrow that dollar amount.

23:05

You kind of borrow the money as

23:07

you need it to do the different

23:09

things. So that can be really helpful

23:11

for something like a renovation where, like

23:13

you said, you have an idea of

23:15

how much you hope it will cost.

23:17

But other costs might come up. You

23:20

also might need the money at different

23:22

times. So with a HELOC, you're taking

23:24

the money out as you need it.

23:26

And then because of that, you're also

23:28

only paying interest on what you've actually

23:30

borrowed. So with a home equity loan,

23:33

since you've borrowed the whole thing right

23:35

at the beginning, you are paying interest

23:37

on the whole thing the whole time.

23:39

With a HELOC, you're paying interest on

23:41

what you've spent out of it. The

23:43

downside is that most HELOCs are adjustable

23:45

rate. And so that means that the

23:48

interest rate changes. pretty

23:50

regularly. It's going to change along

23:52

with the prime rate. So people

23:54

who have HELOCs get really into

23:56

what the Federal Reserve is doing

23:58

and other kinds of wonky interest

24:00

rates, stuff like that, because suddenly

24:02

you're very conscious of interest rates

24:04

going up or down. There are

24:06

some different tricks you can do

24:08

with a HELOC. Some lenders will

24:10

allow you to convert part of

24:12

it to a fixed rate, but

24:14

in general, it gets a little

24:16

bit wonky, a little bit complex.

24:19

That said, HELOC is often

24:21

a really good option for

24:23

home renovation just because of

24:25

that flexibility. You can usually

24:27

borrow from the HELOC for

24:29

like a 10 -year period before

24:31

you go into all the

24:33

repayment. So in my situation,

24:35

I'm just thinking through like,

24:37

would maybe a good option

24:39

for us be to more

24:41

aggressively tackle our mortgage and

24:43

get more equity in our

24:45

home? in order

24:47

to ultimately use it

24:50

for a HELOC? That

24:52

certainly would be one

24:54

option. Personally, for me, I am

24:56

generally an advocate of paying extra principal

24:58

if that's something that you're able to

25:00

do. The way that mortgages work, there's

25:02

this thing called amortization. So at the

25:04

beginning of the loan, you're paying a

25:07

lot more toward interest than you are

25:09

toward principal. And then as the loan

25:11

progresses, those reverse. So any

25:13

amount that you can pay extra

25:15

directly to the principal each month can

25:17

be really helpful. And it can

25:19

also be really satisfying because after a

25:21

while you can look at the

25:23

amortization calendar and see that you've literally

25:25

cut years off the mortgage. So

25:28

that's something I personally have enjoyed with

25:30

paying extra principal is feeling like,

25:32

hey, I'm literally taking bites out of

25:34

this mortgage. The other thing

25:36

to consider is, again, the home value

25:38

thing. So if you were to apply

25:40

for a home equity loan or for

25:42

a HELOC, the lender would want an

25:44

appraisal of the home. It'll cost money

25:46

as appraisals always do. It'll be a

25:48

few hundred dollars. But again, that will

25:51

let you know what the home is

25:53

actually worth right now in your current

25:55

market with the updates that you've made.

25:57

And so that can be really helpful

25:59

in terms of giving you more that

26:01

you could borrow from. I'm

26:03

going to pivot the conversation a little.

26:05

I want to ask you, Irene, whether

26:07

you've thought about whether you're prepared to

26:10

add to the financial burden you already

26:12

have with a mortgage by potentially doing

26:14

a renovation. And also, are you ready

26:16

for the emotional labor of home renovations?

26:18

Oh. Yeah, these are good questions. Like

26:20

I said earlier, you know, we have

26:22

a $3 ,000 buffer from our budget

26:24

to what we make monthly post taxes.

26:27

So we do have some wiggle room

26:29

to work with as far as if

26:31

we were paying a HELOC. And also

26:33

that wiggle room has been really helpful

26:35

for us when unexpected expenses come up.

26:37

So it would be something that we

26:39

would kind of need to think about

26:41

more critically. And then, yes,

26:43

I hear you in the like emotional

26:46

cost of renovating. It was one

26:48

of those things when we were renovating

26:50

the original house about a year

26:52

and a half ago that I told

26:54

my neighbor, I was like, don't

26:56

worry, my husband and I are doing

26:58

fine. And also I can see

27:01

why renovations and moving and these kinds

27:03

of things can result in a

27:05

divorce. Like I can see that because

27:07

we are definitely, you know, fighting

27:09

more than we normally would. It's

27:12

one of those things where I

27:14

think we definitely have weighed. Do

27:16

we add on to this house?

27:18

To your point. It can get

27:20

complicated with the HELOC. There is

27:22

the emotional cost. And then also,

27:24

of course, the time involved. Or

27:26

do we just move? You know,

27:28

because we've definitely had that thought,

27:31

too, where typical of any place

27:33

in the U .S., you know,

27:35

we paid for location. We live

27:37

in a smaller house and we

27:39

are close to town. You know,

27:41

we're in a great location. So

27:43

we could explore moving further from

27:45

the city center. and having

27:47

more space. You know, I don't know if

27:49

that's even really a financial decision more than just

27:51

a, well, but maybe you guys could speak

27:53

to that. If you guys have any thoughts on

27:55

that financially, obviously there's a lot of emotions

27:57

involved in that. There are a lot of emotions

28:00

involved in that, right? And also because you

28:02

mentioned that you have children, depending on how long

28:04

you waited out for that, you could start

28:06

getting into questions of, do I want to change

28:08

their schools? You know,

28:10

and stuff like that. And weighing

28:12

things like having this closer

28:14

location versus potentially having a further

28:16

commute, the different conveniences, location

28:19

versus space. There is so much

28:21

going on there. And so

28:23

really that is one where, you know, you

28:25

can look at the numbers and say, okay,

28:27

this is what we might make if we

28:29

sold this house. So this is what we

28:31

would have to work with in terms of

28:33

a home buying budget for our next home.

28:35

But there are also all of these other

28:37

like intangibles that you're going to have to

28:39

kind of mentally almost put a price on

28:41

and decide which among those factors you really

28:43

value the most. Kate,

28:46

what are some ways to approach home renovation

28:48

plans? What would you say if you

28:50

have to give an outline? for

28:52

ways people can approach it? I think

28:54

it really depends on the scope of

28:56

the renovation or the scope of the

28:58

repair. Another thing to

29:00

consider is your timeline. So Irene is

29:02

working with this nice timeline of, okay,

29:04

we want to do this, but

29:07

this isn't something where we need to

29:09

do it immediately. When I bought

29:11

my house, which very much a fixer

29:13

-upper, cannot emphasize enough how fixer -upper

29:15

this home was. I knew

29:17

that the roof needed to be replaced.

29:19

I knew this was going to

29:21

come up. I was really hoping the

29:23

roof could just make it like

29:25

one year before I needed to do

29:27

that. But before I had even

29:29

moved in, I started seeing stains on

29:31

the bedroom ceiling that told me

29:33

that the roof was leaking. So that's

29:36

something where... something like home equity

29:38

borrowing was not even an option. It

29:40

just simply would have taken too

29:42

long. With a cash out refinance, you're

29:44

looking at like a typical loan

29:46

closing time, roughly the same as you

29:48

would be for a mortgage. With

29:50

stuff like HELOCs, you will see some

29:52

lenders like emphasizing how quickly they

29:54

can close on a HELOC for you.

29:56

But I needed that roof like.

29:58

today. So I ended up taking a

30:00

personal loan to take care of

30:02

that just because I really needed the

30:04

money that immediately. But because it

30:06

was like a five -figure borrow, putting

30:08

it on a card was not going

30:10

to work for me. So sometimes there are

30:12

things like that where something external could

30:15

push your timeline one way or another, and

30:17

then that's going to be a really

30:19

deciding factor. All right, Irene, do

30:21

you feel like you have some steps

30:23

to take based on our conversation? Yes.

30:25

Yes. It's really good food for thought.

30:27

And something about the home equity line

30:30

of credit, it was helpful to hear

30:32

the difference between that and a home

30:34

equity loan. I don't even think I

30:36

really realized that those were two different

30:38

things. And hearing

30:40

that it's kind of like a credit

30:42

card is helpful as far as thinking

30:44

about if that would be a good

30:46

choice for us financially. Got it. So

30:48

this has been a great conversation and

30:51

a reminder that this is not individualized

30:53

advice, but we hope that the chat

30:55

that we've had with Kate is enough

30:57

to equip you with information you need

30:59

to make your own decision. So I

31:01

hope that's the case for you, Irene.

31:04

Yes, it's been super helpful. I really

31:06

appreciate it. 7306373.

31:37

That's 901 730 N-E-R-D. You

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