We've decided to remodel our kitchen.
For the sake of round numbers, assume I have about 20K in the emergency fund/savings right now. 20K in a stock portfolio, and a MUCH larger amount in the retirement funds (Traditional IRA and 401K), due to being a steadfast contributor, generous matching from multiple employers, and the fact that the market has just finished a strong recovery. I am 43.
As a risk averse person, I am reluctant to tap into the emergency fund and drain it to pay for the 30K (approx) kitchen remodel.
Note: We have a 24K second mortgage on the house that has a high 7.625% rate. My plan is to pay that off now, as part of all of this, but that will take a chunk out of the emergency savings as well. The primary mortgage is 4.375, 23 years left on a 30 year fixed.
Our options include:
Refinance the entire mortgage into something like a 30 year fixed at 4.375, same rate as we have now, but it lumps the mortgage into a single mortgage and gets rid of the hefty 6.725 rate while preserving cash flow. Closing costs would be about $5000. So this isn't ideal.
Refinance to a more aggressive loan, like a 15 year loan at 3.75. But then forced to pay a higher monthly amount to the mortgage. Also, 5K in closing costs.
Take advantage of something like Sikorsky Credit Unions "Advantage" 12 year mortgage, at 3.09%. Pros: $700 all in closing costs. 12 year target for mortgage payoff, savings for us of $130K on interest from the current setup. Downside: $700 a month higher payment, even if times get tough. This could be challenging for cash flow.
Borrow from 401K with currently employer. Pros: Borrowing own money, paying self back with interest. Leaves current liquid assets untouched for safety. Cons: Market opportunity (although when the market is very high, like now, it seems a better time to take this risk than when the market is starting a 2009-2018 type recovery). Obviously if over the next 5 years the market sits flat or has another large dip for a few years, it would have been a smart move, but it's hard to tell. Also, current employer has told me I have nothing to worry about with job security. Plus I would have a 3-4 month severance if I did lose my job, and the emergency assets intact.
Pay off the current 24K HELOC at 7.625 with emergency savings, and immediately open a new one. Sikosrky right now has a deal for a 2.99 HELOC through June of 2019, after which it's prime - .25 or something like that. Interest only.
Edit: Forgot to add #6. Pay off the HELOC 24K, and just keep the 4.375 23 year remaining mortgage, but make extra payments of $600 a month similar to the 12 year 3.09 option that is forced. In case times get tough. Downside to this is that even if I make the same payments via extra payment, you still end up paying something like 40K more over the 12 years due to the difference in rates, but you gain the safety of a lower required payment in a major recession or job situation.
I'm considering doing #3 and #4 together. But would love for people to show me if my number crunching has been in error. Could also split this up a bit, 20K from 401K, rest from a new HELOC, etc.
Last: Please avoid the temptation to advise us NOT to do the kitchen and instead payoff certain mortgages or debts instead, because we have thought for 12 years about this and decided it's happening for sure, for quality of life reasons, and do to a number of issues with the kitchen (literally rotting cabinets, warped counters, hardwood floors are shot, etc). We spend most of our time in the kitchen/dining/living room great room and we want to remodel it finally. We plan to be here for at least 6-10 years, or for good.