THE SCENARIO:
Several years ago, I helped a client purchase their first home. Fast forward to today: their family had grown, and they were ready to “trade up” to a larger house. There was just one problem.
Housing inventory on Long Island is extremely limited. On top of that, they did not want to give up the 3% interest rate on their existing mortgage. Even though we prequalified them for a larger loan and a new home, they simply couldn’t find a property that checked all the boxes.
After careful consideration, they made a different decision—one that ultimately worked far better for them.
Instead of moving, they decided to expand their current home by building a dormer, creating the additional space their growing family needed without leaving the house they already loved.
THE ISSUE:
The next question was obvious: How would they pay for the construction?
They had some savings, but nowhere near enough to cover the full cost of the project. A traditional home equity loan or HELOC was an option; but those products typically limit borrowing to 80% of the home’s current value, minus the existing mortgage balance. That restriction didn’t provide enough funds.
A construction loan could cover the full cost—but that created a bigger problem. Construction loans must be in first-lien position, meaning their low rate 3% mortgage would need to be paid off and replaced with a new loan at today’s much higher interest rates. That was a dealbreaker.
THE SOLUTION:
This is where creative mortgage planning made all the difference.
I introduced them to a Construction Home Equity Line of Credit (HELOC)—a lesser known but extremely powerful financing option.
This HELOC functions much like a traditional home equity line of credit, with one major twist:
The available line amount is based on up to 95% of the home’s future, improved value (the “after construction” value), rather than the current value!
THE RESULT:
The outcome was a win on every level:
• They secured more than enough funds to cover the entire construction project
• They had additional cushion for unexpected cost overruns
• Their original 3% first mortgage remained untouched
• The HELOC provided long term repayment flexibility—up to 30 years, just like a standard HELOC
Most importantly, they gained the extra space their family needed without sacrificing their financial advantages.
THE BOTTOM LINE:
In today’s market, moving isn’t always the smartest upgrade.
For homeowners with low fixed mortgage rates, creative strategies—like construction HELOCs based on future value—can unlock powerful options that many people don’t even realize exist. Sometimes, the right solution isn’t a bigger house… it’s a better mortgage strategy!
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Warren Goldberg is President of Mortgage Wealth Advisors, a Certified Mortgage Planning Specialist®, and a published author. His interviews include Blog-Talk Radio, Newsday, The Daily News, Anton Press, and the Long Island Herald. Since 1992, he’s been sharing his financial knowledge and wealth-building strategies, including how to properly use your mortgage as a financial tool. His clients regularly express their trust and appreciation by recommending friends and family call when in need of mortgage, real estate, and financial guidance.
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