Mortgage applications fell to a 15-year low last week, according to a report out Wednesday from the Mortgage Bankers Association. It's not surprising, given the recent uncertainty in the stock market and the fact that nearly 11 million Americans still owe more on their mortgages than their homes are worth. But mortgage rates – both fixed and variable loans – have hit 50-year lows, making this a spectacular time for homeowners in a solid financial position to refinance, or borrow for renovations. A New York homeowner named Joy recently asked me for the best way to borrow:

I am in a dilemma whether or not to refinance my mortgage, get a home equity line of credit (HELOC) or a home equity loan. The reason for the extra money is for some home repairs and improvements to the tune of $50,000. Currently, I have no debt, my mortgage with taxes is $1,400. I owe $110,000 on the home, which is worth $400,000 to $425,000. I'm retired. I have a small monthly retirement from my employer and am currently on unemployment. I am getting ready to collect Social Security next year. I have a healthy 401(k) with about $800,000 and liquid assets of $80,000. Can you advise which is the best way for me to go?

In your situation, I'd recommend the home equity line of credit. I checked with banks in your area, and found offers as low as 2.99% with no closing costs for people with excellent credit scores. HELOCs offer a quicker and easier process than a mortgage refinance, which would come with closing costs of several thousand dollars. I would only consider a refinance into a 30-year fixed-rate loan if your current mortgage is at a relatively high interest rate and you have many years left on the loan, because a new loan will cost a significant amount in interest over time.

There's a big caveat here: Home equity credit lines carry variable interest rates typically with no cap, and that's a concern given that you are on a fixed income. However, rates are expected to remain low for at least two years and likely beyond. In the event interest rates suddenly spiked, would you be comfortable using your cash on hand to pay down the line of credit as a Plan B?

The key is to have a written plan from the get-go to pay back the principle and interest on a monthly basis, earmarking, say, $400 to $500 each month toward paying it down. Look carefully at the bite that expense will take out of your budget. Your home is the collateral for this loan, and you don't want to put yourself in a precarious position. You may even want to consider waiting a year until you're actually collecting Social Security and have a better handle on your monthly income.

I'm also assuming you intend to stay in the home long-term rather than fixing up the place to sell, because with the depressed housing market, you may not recoup the cost of those upgrades. Good luck!

Struggling with your own personal finance situation? I welcome your questions but it's also about your wisdom, ideas, and experiences that may help other readers. Email me at You can also follow me on Twitter @MoneyHappiness.

Content Solely Informational: Content on this site is for informational purposes only and is not intended to be investment advice, or any other kind of professional advice. You must determine for yourself or in consultation with a professional whether any financial strategy or advice is right for you.

Increase your money and finance knowledge from home

Introduction to Retirement Funds

Target date funds help you maintain a long term portfolio.

View Course »

Advice for Recent College Grads

Prepare yourself for the "real world".

View Course »

Add a Comment

*0 / 3000 Character Maximum


Filter by:

Rates have definitely helped keep real estate afloat. However, the real problems are unemployment, uncertainty, confidence in the economy, and tight mortgage lending standards.

November 28 2013 at 1:55 AM Report abuse rate up rate down Reply
Jeff B

Borrowing too much caused the recession. If you can't pay cash, don't do it.

August 25 2011 at 10:44 AM Report abuse rate up rate down Reply

When i did not have money,i did everything myself......i hate to be in debt!........sometimes i hired some outside help,and paid cash for it

August 25 2011 at 9:11 AM Report abuse rate up rate down Reply

The only thing I learned something from this article is....screw off at work just before you plan to retire so you can collect unemployement and retire sooner. Ms. Rowley (the author) should have listed her artcle under "Retirement Planning".

August 25 2011 at 5:41 AM Report abuse rate up rate down Reply

I like, "I am currently RETIRED and collecting UNEMPLOYMENT...." Some how, doesn't our goverment see that as an oxymoron? So us working tax payers are now paying for early retirement (on top of SS) to someone that has money to retire already.

August 25 2011 at 5:37 AM Report abuse +1 rate up rate down Reply

Borrow it from your savings account.

August 25 2011 at 5:17 AM Report abuse +1 rate up rate down Reply

Person with $800,000 in a 401 K, $80,000 in liquid assests, and $290 in home equity - on unemployment & going on soc security - and we wonder why this country is going broke?

August 25 2011 at 1:40 AM Report abuse +1 rate up rate down Reply
2 replies to mjohamlin's comment

lol....yep and the ones that actualy do not have money, bring their "gov hand out checks" into the store I work at and rent video game boxes, top of the TV's, etc .etc every day. You and I are paying for them to sit at home and play vodeo games on the large screen TV.

August 25 2011 at 5:22 AM Report abuse +1 rate up rate down Reply

So people who save for emergencies and their retirement should not be able to collect unemployment or social security? That money should only go to the irresponsible? and we wonder why this country is going broke?

August 25 2011 at 10:59 AM Report abuse rate up rate down Reply

Don't renovate your home right now unless you are doing the work yourself and the toilet is stopped up, the electricity is if and your A/C is on the daFritz. See how I snuck the da in there without you expecting it. Now let's talk about some serious plumbing issues before Obama makes indoor plumbing for white folks illegal as smoking pot in San Fran :-) It's just a joke folks and, as a libertarian, I'm all for ya smoking daPot, if ya need it.

August 24 2011 at 7:55 PM Report abuse +1 rate up rate down Reply

The heloc payment provides much more principal paydown than a mortgage from the inception.

August 24 2011 at 7:35 PM Report abuse rate up rate down Reply
1 reply to ssygold's comment
Jeff B

Um, if you are borrowing against your house how is principle paid down?

August 25 2011 at 10:46 AM Report abuse rate up rate down Reply