Paying for a Kitchen Remodel

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sapper1371
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Paying for a Kitchen Remodel

Post by sapper1371 »

Been trying to avoid this for years but DW won’t let it go so seems like it’s gonna happen. We have been maxing out all tax advantaged space for years and also splitting remaining savings between taxable and extra mortgage payments. At this point we have about $75k in taxable and owe about $43k on the mortgage (3.25%). House is worth about $450k so plenty of equity.

Estimate the remodel will be about $50k which is more than we can cash flow. Thinking the options are to either take out a home equity loan or to withdraw from taxable. Is there a conventional wisdom here on which would be the better option?

Our credit is excellent and there is little to no chance we will be moving for at least 20 years. No other debt besides mortgage.

Any advice would be greatly appreciated.
RetiredCSProf
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Re: Paying for a Kitchen Remodel

Post by RetiredCSProf »

Have you priced out the remodel? I think $50K is on the low side if this is a complete gut, especially if you need to replace appliances, cabinetry, countertops, flooring, lighting, and bring everything up to code. I would plan to take $25K from taxable and draw the rest from a HELOC. Remodeling is addictive -- after remodeling my kitchen, everything else looked like it needed an upgrade.
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sapper1371
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Re: Paying for a Kitchen Remodel

Post by sapper1371 »

RetiredCSProf wrote: Thu Jan 20, 2022 9:03 pm Have you priced out the remodel? I think $50K is on the low side if this is a complete gut, especially if you need to replace appliances, cabinetry, countertops, flooring, lighting, and bring everything up to code. I would plan to take $25K from taxable and draw the rest from a HELOC. Remodeling is addictive -- after remodeling my kitchen, everything else looked like it needed an upgrade.
I suppose it depends on grade of materials but we have had 2 rough quotes that were both in the $50k range. I am sure it will creep up, but hopefully not substantially.

I guess I hadn’t thought about doing half and half but that might be a good strategy. Any benefits of a HELOC vs a HE Loan?
sport
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Re: Paying for a Kitchen Remodel

Post by sport »

A kitchen remodel is a "want" not a "need". I would not borrow money for a want. YMMV.
Years ago, we were advised not to spend more than 10% of the value of the house on a kitchen remodel. IMO, that is probably still good advice.
delamer
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Re: Paying for a Kitchen Remodel

Post by delamer »

We used a HELOC for ours, about 15 years ago.

There was a small initial fee of about $300, I think. But otherwise, no cost until we actually began drawing it down.

It gives you flexibility to either pay off principal or keep money in taxable, depending on interest rates and portfolio returns.

Eventually, we refinanced our 1st mortgage and the HELOC into a 10-year mortgage.

Of course, a cash-out refinance now is another possibility.

How much time is left on your first mortgage?
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Bogle7
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Re: Paying for a Kitchen Remodel

Post by Bogle7 »

We used our HELOC. It is now down to zero.
$52K in 2017 for 1/2 kitchen renovation of 15 linear feet.
Cabinets (custom, Blum hardware and Blum LEGRABOX), 2 Miele ovens, Sub-Zero fridge, wine fridge, Wolf cooktop, Zephyr vent hood, Heath Ceramics backsplash ($60/sqft), quartz countertop.

Image
Last edited by Bogle7 on Thu Jan 20, 2022 11:30 pm, edited 1 time in total.
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dstac
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Re: Paying for a Kitchen Remodel

Post by dstac »

Bogle7 wrote: Thu Jan 20, 2022 10:05 pm We used our HELOC. It is now down to zero.
$52K in 2017 for 1/2 kitchen renovation of 15 linear feet.
Cabinets (Blum hardware and Blum LEGRABOX), 2 Miele ovens, Sub-Zero fridge, wine fridge, Wolf cooktop, Zephyr vent hood, Heath Ceramics backsplash ($60/sqft), quartz countertop.
What’s the general cost of living in your area? (Trying to start budgeting for something similar, but guessing 5yrs on, prices may have even doubled.)
spth
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Re: Paying for a Kitchen Remodel

Post by spth »

We took out a heloc but then applied for credit cards with no interest for a year. Maxed those out and paid the minimum until they were due. Most of the cards even had signup bonuses. We never used the heloc.
island
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Re: Paying for a Kitchen Remodel

Post by island »

Bogle7 wrote: Thu Jan 20, 2022 10:05 pm We used our HELOC. It is now down to zero.
$52K in 2017 for 1/2 kitchen renovation of 15 linear feet.
Cabinets (Blum hardware and Blum LEGRABOX), 2 Miele ovens, Sub-Zero fridge, wine fridge, Wolf cooktop, Zephyr vent hood, Heath Ceramics backsplash ($60/sqft), quartz countertop.

Image
Icon suggests u attached a photo? But I can't open it, bummer.
Wow! Only 52K or all that incl top of the line appliances? What part of the country do u live in? I have a small kitchen and when last got quotes, in 2015?, it was double that w lower grade appliances. Didn't have time to deal w it then, but maybe soon since cutting back work hours , but I dread what the quotes will be now!
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ApeAttack
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Re: Paying for a Kitchen Remodel

Post by ApeAttack »

island wrote: Thu Jan 20, 2022 10:40 pm
Bogle7 wrote: Thu Jan 20, 2022 10:05 pm We used our HELOC. It is now down to zero.
$52K in 2017 for 1/2 kitchen renovation of 15 linear feet.
Cabinets (Blum hardware and Blum LEGRABOX), 2 Miele ovens, Sub-Zero fridge, wine fridge, Wolf cooktop, Zephyr vent hood, Heath Ceramics backsplash ($60/sqft), quartz countertop.

Image
Icon suggests u attached a photo? But I can't open it, bummer.
Wow! Only 52K or all that incl top of the line appliances? What part of the country do u live in? I have a small kitchen and when last got quotes, in 2015?, it was double that w lower grade appliances. Didn't have time to deal w it then, but maybe soon since cutting back work hours , but I dread what the quotes will be now!
You can find very cheap slightly used top-of-the-line appliances on Offer Up, Craigslist, fb marketplace, etc.
May all your index funds gain +0.5% today.
mick-madden
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Re: Paying for a Kitchen Remodel

Post by mick-madden »

I’d suggest researching an ikea kitchen with aftermarket finishes (fronts, countertops) added by a third party. There are a few options out there. Couple that with your high quality used appliances and you will have $75-100k looking kitchen for $25k.

It will take a little work, but worth the effort.
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tigermilk
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Re: Paying for a Kitchen Remodel

Post by tigermilk »

RetiredCSProf wrote: Thu Jan 20, 2022 9:03 pm Have you priced out the remodel? I think $50K is on the low side if this is a complete gut, especially if you need to replace appliances, cabinetry, countertops, flooring, lighting, and bring everything up to code. I would plan to take $25K from taxable and draw the rest from a HELOC. Remodeling is addictive -- after remodeling my kitchen, everything else looked like it needed an upgrade.
I guess we hit the low side. Started our remodel over the summer. Completely gutted the kitchen, moved the refrigerator to a different wall, so had to run plumbing. Replaced stovetop and built-in oven with a range and moved to another wall so again had to plumb new case lines and cut through the brick for the vent hood. Had to run some new electrical lines and also redid the overhead lights. Needed 2 slabs of Cambria countertops, got cabinets from Starmark, backsplash tile was true Moroccan Zelige. Spoiled ourselves and got a Waterstone faucet. Kept the old fridge, but got a new range (GE Cafe duel fuel), dishwasher (Miele), and countertop microwave (Breville). New cabinets go floor to ceiling (ten foot ceilings) to maximize storage, Total was around $55k, with $15k provided by State Farm due to our previous Whirlpool dishwasher slowly leaking and destroying several cabinets. Because we moved lines more than a foot we had to bring everything up to current code.

Not included is the cost of flooring. The kitchen was tile, but we oulled all that up and replaced with laminate as part of an overhaul of the flooring throughout the house.

We did a combination of cash flowing and taking from taxable.
mw1739
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Re: Paying for a Kitchen Remodel

Post by mw1739 »

Depending on how quickly you feel you can payoff the HELOC, you may want to consider a cashout refinance to lock in the low fixed rate. But, you may need to borrow more to make the costs reasonable for a ~ $100,000 loan.

Recently finished our kitchen remodel and paid cash for it. Considering opening a HELOC now that our cash is a little low, but I'm happy to have paid in full. Excluding flooring costs (which is unfortunately backordered), we've spent about $75,000 on all new cabinets, counters, lighting, plumbing, appliances etc. This was our cheapest estimate by far - the others were $100k+
IowaFarmBoy
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Re: Paying for a Kitchen Remodel

Post by IowaFarmBoy »

Let me start by saying my bias is toward minimizing debt and paying off the mortgage.

It looks like you have made great progress toward that and, if it were me, I personally would hate to do some kind of refinance that would increase/extend my mortgage. I would lean toward using some combination of money from the taxable account combined with a HELOC with the idea that money currently going into taxable along with the extra mortgage payments would go to paying off the HELOC quickly. Find some balance of how much to pull from taxable that feels reasonable to you. I acknowledge that is more of a mind game than anything since money is fungible but that's the way I am personally wired.

One thing I don't think I have seen anyone mention is to consider the tax implications of pulling money from the taxable account. If there are gains that would generate a significant tax bill, I would be less likely to using money from the taxable account.
FootballFan5548
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Re: Paying for a Kitchen Remodel

Post by FootballFan5548 »

We're going through this right now. I intentionally opened a HELOC for this purpose, and also, why not?
So we've been cash flowing some of it using a cash back credit card (BOA preferred .75% kicker), and we've been using the HELOC to help on bigger ticket items like cabinets and appliances, etc.
It's a good blend... I would also expect your costs to go up, If your wife is pushing for this kitchen, she most likely won't settle, and you are only going to do this once, so when facing two options, you'll probably lean towards the nicer, more expensive one.

The HELOC makes a ton of sense just to have in case things run over or if you are short on cash right when you need to make a payment to the builder or appliances or whatever. I would absolutely open a HELOC.
onourway
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Re: Paying for a Kitchen Remodel

Post by onourway »

I think you should just use the HELOC. You've effectively saved for it by paying aggressively on the mortgage, won't incur capital gains tax from liquidating from taxable, and I personally think having some liquid assets outside of the mortgage is more valuable than having a paid off mortgage and no liquidity.

I agree that you should budget for more than the estimate - increase your expectations by another 50% over what you hear. If you don't spend it all you'll feel better than expecting $50k and grudgingly spending $75k.
musicmom
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Re: Paying for a Kitchen Remodel

Post by musicmom »

I vote for HELOC also.

We did a total gut of our kitchen 15 years ago in a HCOL area. Moved all plumbing, zillions of high end cabinets, granite, farm sink, hardwood. Total just under 50K.
It was our ounce in a lifetime kitchen reno of a 1970 kitchen in our 200 yr old house.
Even after 12 yrs it was a big selling point when we sold 3 yrs ago.

We used the HELOC for most of it. Paid it off when we refinanced first mortgage to a much lower rate.
Casper
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Re: Paying for a Kitchen Remodel

Post by Casper »

I'm probably missing something, but can you just compare the cost of capital gains on your taxable withdrawals versus the interest you'll pay on the HELOC? Also factoring in any opportunity cost by making the taxable withdrawal.

In the same situation, I'd probably take a HELOC so I could let the taxable investments sit untouched. $75k in taxable isn't much, so I'd want to leave it alone. But that's not taking into account the above or whatever your goals are for taxable (ie, are they long-term investments or not).

We did a full kitchen renovation last summer, worth every penny. Paid $55k, including appliances (stainless, but not high end--Samsung and Whirlpool). We paid for it out of savings, since we were sitting on some cash. Probably wouldn't have done it if it required a loan or taxable withdrawal.
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sapper1371
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Re: Paying for a Kitchen Remodel

Post by sapper1371 »

IowaFarmBoy wrote: Fri Jan 21, 2022 7:45 am
One thing I don't think I have seen anyone mention is to consider the tax implications of pulling money from the taxable account. If there are gains that would generate a significant tax bill, I would be less likely to using money from the taxable account.
This is something I need to understand because I have never withdrawn anything from the taxable account. It was opened about 5 years ago and is pretty much all S&P 500 ETFs so there are sizeable gains. Would these gains just be taxed at a flat 10% since they are LTCG?
chrisam314
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Re: Paying for a Kitchen Remodel

Post by chrisam314 »

Caveating that my advice below is based on the limited income, expense, mortgage term, and tax implications provided in the original post.

Even though HELOC's have been somewhat 'normalized' they are not a free lunch. I'm surprised so many people are simply suggesting to hit the HELOC easy button. It's my understanding there is an underwriting process for HELOC's, closing costs (possible appraisal & application fees), etc.

I am going to give you a different suggestion. Devil's advocate so to speak. Paying down a fixed rate mortgage to then turn around and take out a higher interest rate variable line of credit in an environment where the Fed has openly stated they will begin raising interest rates makes no sense to me. HELOC rates are tied to Fed actions.

Option A.

Stop making pre-payments on your mortgage. Call your lender and ask if you can recast your mortgage without a fee. This will re-amortize your current mortgage to its original term and drop your payment accordingly. There are other good threads here on recasts if you have more questions about this. A recast would give you extra cash flow each month.

Save all of your extra cash moving forward. Since you are still in the planning phase you have plenty of time. You should put together a timeline for when actual payments are coming due. When you are dealing with contractors extend payment terms as much as reasonably possible. Educate yourself on how much things should cost (including labor) so you avoid getting fleeced.

If you still aren't able to cover it sell as needed in the taxable account being mindful of tax and asset allocation implications.

Option B.

Talk your significant other into holding out for another year or two. Get rid of the mortgage entirely and as a present buy yourselves a new kitchen after. Assuming you've been making substantial pre-payments this will likely free up a ton of cash flow for you. Given the remaining balance on the mortgage I would go this route if you can.
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sapper1371
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Re: Paying for a Kitchen Remodel

Post by sapper1371 »

chrisam314 wrote: Fri Jan 21, 2022 9:05 am
Option B.

Talk your significant other into holding out for another year or two. Get rid of the mortgage entirely and as a present buy yourselves a new kitchen after. Assuming you've been making substantial pre-payments this will likely free up a ton of cash flow for you. Given the remaining balance on the mortgage I would go this route if you can.
Good points. Another piece of info I likely should have included in the original post is I was previously trying to payoff the mortgage first, then we could probably have paid cash for the upgrade after saving for maybe another year. However, we actually had a incident where a pot partially melted and splattered solder all over the kitchen floor. Insurance is covering this at $7k but this of course has kinda expedited everything else because the last thing I want to do with that $7k is put in new floor now if we are going to gut this thing in a few more years anyway.

I’m currently putting about $3-5k/mo into extra mortgage/taxable (about 50/50) so if I stop that I’ll likely be able to pay the HELOC off within a year. And it the interest rate suddenly increased I’d still have the option to pay it off from taxable.

I don’t think I’ll get fleeced on the job as I actually have the background to do it myself, just not the time. But the higher the price goes the better my DIY bid looks so you never know :)

Any thoughts on that?
delamer
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Re: Paying for a Kitchen Remodel

Post by delamer »

sapper1371 wrote: Fri Jan 21, 2022 8:34 am
IowaFarmBoy wrote: Fri Jan 21, 2022 7:45 am
One thing I don't think I have seen anyone mention is to consider the tax implications of pulling money from the taxable account. If there are gains that would generate a significant tax bill, I would be less likely to using money from the taxable account.
This is something I need to understand because I have never withdrawn anything from the taxable account. It was opened about 5 years ago and is pretty much all S&P 500 ETFs so there are sizeable gains. Would these gains just be taxed at a flat 10% since they are LTCG?
Depending on your income level, some may be taxed at 0%. Most (if not all) would likely be 15%.

That’s federal, of course: https://www.kiplinger.com/taxes/capital ... thresholds

If your state taxes them, add that.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
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8foot7
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Re: Paying for a Kitchen Remodel

Post by 8foot7 »

You have so little left on your mortgage it is almost all principal. Wife acceptance factor/"happy wife happy life" is a dubious factor generally, but here, in your situation, I would not hesitate to jump in. Life is short. I'd stop directing prepayments to your mortgage and stop putting money in taxable, pay cash as you go along with the reno, and tap a HELOC for the difference.
flyfishers83
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Re: Paying for a Kitchen Remodel

Post by flyfishers83 »

A couple of thoughts.
I would quit putting that extra money towards the mortgage if you're ready going to do this. As mentioned, it doesn't make sense to pay down a low rate to then borrow at a higher rate.

Saving that extra 3-5k per month for the remodel covers most of the cost in less than a year.
With respect to the damage, is it something you can live with for some time? You obviously don't want to throw away the money, so severity of damage and coordinating remodel timing could significantly change advice.
chrisam314
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Re: Paying for a Kitchen Remodel

Post by chrisam314 »

sapper1371 wrote: Fri Jan 21, 2022 9:25 am
chrisam314 wrote: Fri Jan 21, 2022 9:05 am
Option B.

Talk your significant other into holding out for another year or two. Get rid of the mortgage entirely and as a present buy yourselves a new kitchen after. Assuming you've been making substantial pre-payments this will likely free up a ton of cash flow for you. Given the remaining balance on the mortgage I would go this route if you can.
Good points. Another piece of info I likely should have included in the original post is I was previously trying to payoff the mortgage first, then we could probably have paid cash for the upgrade after saving for maybe another year. However, we actually had a incident where a pot partially melted and splattered solder all over the kitchen floor. Insurance is covering this at $7k but this of course has kinda expedited everything else because the last thing I want to do with that $7k is put in new floor now if we are going to gut this thing in a few more years anyway.

I’m currently putting about $3-5k/mo into extra mortgage/taxable (about 50/50) so if I stop that I’ll likely be able to pay the HELOC off within a year. And it the interest rate suddenly increased I’d still have the option to pay it off from taxable.

I don’t think I’ll get fleeced on the job as I actually have the background to do it myself, just not the time. But the higher the price goes the better my DIY bid looks so you never know :)

Any thoughts on that?
Good to have the background. So if you're confident in your total budget number and that you can pay it off in a year then the easiest route without paying any interest or capital gains is probably finding a credit card with a year or 18 months 0% interest. If you do Lowe's or HD cards (assuming you don't have them already) you can get discounts on materials if they are sourced through them. That assumes their assortment matches what you want. Or you could go the points route and get a lucrative sign up bonus. There are a few different ways you can go with that.
Topic Author
sapper1371
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Re: Paying for a Kitchen Remodel

Post by sapper1371 »

flyfishers83 wrote: Fri Jan 21, 2022 9:49 am A couple of thoughts.
I would quit putting that extra money towards the mortgage if you're ready going to do this. As mentioned, it doesn't make sense to pay down a low rate to then borrow at a higher rate.

Saving that extra 3-5k per month for the remodel covers most of the cost in less than a year.
With respect to the damage, is it something you can live with for some time? You obviously don't want to throw away the money, so severity of damage and coordinating remodel timing could significantly change advice.
Yeah. Obviously would redirect any further extra mortgage/taxable payments to the Reno. The damage is a pretty big eyesore, about 20 different burn marks in the hardwood on one side of the kitchen, but it’s cosmetic.
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