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Personal Finances / Buying or Selling a Home

URL:  http://boards.fool.com/2gifts-i-think-youre-on-the-right-track-i-agree-31112544.aspx

Subject:  Re: financing the next house Date:  2/10/2014  6:29 PM
Author:  crackdclaw Number:  126813 of 128075

2gifts,

I think you're on the right track, I agree with your strategy of obtaining funds for the land acquisition of the new construction by tapping into the equity of your current home.

I am thinking that this would avoid taking out the HELOC, where I would be paying interest on the money while it just sits in the bank,

I'm confused by this statement because it's just the opposite. A HELOC provides a line of credit, you draw money as you need to use it, you pay interest only on funds that are drawn. Not sure why you would be paying interest on money that was still available as a line, but not yet drawn? The strategy of a 3YR or 5YR ARM is one where you will be paying interest on money that's just sitting in the bank. On the ARM, you plan to take a loan large enough to retire the current loan balance and provide funds for the land purchase. Until you purchase the land, you're paying interest on money that you have parked. I don't think that's too expensive of a proposition to forego the ARM strategy, just confused by your statement. My own comfort level would be the ARM vs. HELOC due to the fixed rate, even with paying interest on borrowed money sitting in the bank. But there are many on these boards who would run spread sheets to analyze interest costs on parked money, what ifs on HELOC and rising interest rates, etc.

Another point worth considering,