Cashing out your mutual funds to take care of home repairs
- Consider the tax consequences to removing funds from a mutual account.
Is it better to take funds out of our mutual fund or get a loan for home repair?
My husband and I will have to remodel our bathtub due to a major water leak. We have ample funds in our mutual account, but currently not enough in our savings to complete the job. Is it better to take funds out of our mutual fund or get a loan? Note: We just finished paying off our mortgage.
What you will have to keep in mind is the total cost of funds i.e., what is it going to cost you to withdraw cash from your mutual funds in comparison to the total cost involved in getting a home equity line of credit. Keep in mind that the value of your mutual funds will keep changing (depending on the composition of your portfolio) as per the market conditions, so you might not want to withdraw funds if your portfolio is growing. You may also want to have a chat with your accountant or tax advisor. There are many variables to take in account such as exit loads and capital gain tax implications in withdrawing funds from your mutual funds account. In addition, you may want to have the meeting with your broker and tax advisor at the same time to ensure you get all the info you need to make the best decision.
As you have finished paying off your mortgage, the other option for you is a home equity line of credit. Home equity lines of credit (HELOCs) are credit lines given to homeowners based on the amount of equity in their home, and are a common type of loan used by borrowers to access their home equity. Unlike home equity loans, which provide a one-time lump sum loan secured against a home, HELOCs provide an open line of credit, with the credit limit determined by the amount of equity in the home, allowing homeowners to borrow what they need, when they need it. HELOCs are especially popular with homeowners planning home improvements, as they provide much more spending flexibility than traditional home equity loans.
Before taking out a home equity line of credit, you need to first ask yourself what are your goals, and how much money do you need to reach those goals. For example, if you are planning to upgrade and redecorate your kitchen, you need to carefully review your plans, try to obtain price estimates for the work, and determine the cost of the materials and appliances you want to install. Once you have a good idea of how much money you need, you should look at the amount of equity in your home to determine if you have enough equity to fund the project you are planning. You do not want to obtain a home equity line only to find out that you do not have enough credit to see your project to completion. If you do not have enough equity, you will need to reconsider your plans.
Once you have determined how much credit you need, you should contact various home equity lenders to discuss the loan terms they can offer you. It is important that you speak with at least three or four lenders so you can compare the interest rate and loan terms being offered by different lenders; this should give you a good idea of what interest rate you can expect to pay. I also encourage you to visit the Bills.com Home Equity Line Resources page at /home-equity-line/ where you will find a wealth of information and resources for consumers looking to obtain a home equity line. An especially helpful article, which will tell you what to look for in a new home equity line of credit loan, can be found at /home-equity-line-of-credit-loans-articlebills/
Also, if you submit your contact information to the Bills.com Mortgage Savings Center we can have several pre-screened home equity lenders contact you to discuss the loan options available to you.
I hope this information helps you Find. Learn & Save.