Q: My husband and I are adopting a baby from Russia. The approximate cost of this is $25,000. When the adoption is final (at least 10-12 months from now) we will get a $10,000 tax credit from the state and $10,000 from federal. The problem is we have to fork out all this money over the next 9-10 months. So we are either going to get a home equity loan or refinance our existing loan and get cash back to pay for the adoption. We currently owe approx $118,000 on our loan and our house is worth approx $155,000 (?). We live in Barnhart. Our loan is at 6.875% and our monthly payment is $1088. What do you suggest doing - refinancing or home equity loan?

Thanks, Linda

A: Dear Linda:

Dear Linda:

This is a very good question. The answer depends on what you plan to do with your tax credits when you receive them. Since interest rates are currently at 40 year lows you will receive two main benefits by refinancing your existing loan. First, you will be reducing your interest rate on the $118,000 that you currently owe saving you roughly $60 per month. Secondly, you will lock in a low fixed interest rate on the $25,000 cash that you need. However, if you intend to pay back the $25,000 in 12-24 months you should consider a home equity line. The major benefit of a home equity line is the flexibility. You will be able to take draws against your line on an as needed basis and the payment is variable based on the balance that you carry on the line.

Jerry