While any old generic remodel cost estimator can help give you an idea of what your next home remodel may cost, deciding on how you’re going to pay for it is another issue entirely. Fortunately there are a number of good options available and if you’re careful and do your homework you might find that your ideal project is far more budget-friendly than you thought!
1. Refinance your Home
Interest rates are still astonishingly low, which means that if your mortgage is more than a decade old you may able able to lower your monthly payments by refinancing your mortgage. In particular, a cash out style refinance can give you the funds you need to refinance an area of your home by using your home’s equity against an additional amount borrowed (often up to 80% of your home’s value).
2. Take Out a Home Loan
If you want to use your home equity but avoid the trouble or interest rate changes that come with refinancing you may want to consider a Home Equity Loan. A home equity loan is essentially a second mortgage which uses your home’s equity as collateral, and usually has a slightly higher interest rate than your primary mortgage. However, interest payments are tax deductible and you still receive a hefty lump sum of money perfect for reinvesting in your nest egg.
3. Home Equity Line of Credit
A Home Equity Line of Credit (HELOC) is yet another way to use your home’s value to get funding to improve your home, but it isn’t a mortgage or a refinance. Instead, borrowers receive a line of credit that they can borrow against up to, often 80% of their home’s value less the amount of their home loan.
A HELOC is a convenient way to pay for improvements, and not just because many HELOCs come with a credit-card style payment card you can swipe at any hardware store. Take up to ten years and use your HELOC to pay for whatever you need to improve your home during the remodel. During this time you’ll build up a balance that you make small monthly payments on. After your draw period ends you enter a repayment period, and then pay off your balance over 15 years or so. Interest payments are tax deductible, and borrowers have a lot of flexibility in how they use their balance.
4. Personal Loans
The three methods above all come with favorable tax advantages. But they’re all using your home as collateral against your loan. That means that if, for some reason, you can’t pay your lender back, they can foreclose and take your home.
Personal loans are an alternative, and if you have good credit you may not need to put any collateral down at all. Plus you can usually get personal loans with much shorter repayment periods, which can be helpful if you’re trying to limit how much you pay back in interest.
5. Use a Credit Card
Credit cards are yet another option. They’re convenient, easy to use, offer rewards points, and you have endless flexibility when it comes to deciding what you buy and how you spend your funds. However, the interest payments can quickly get out of control if you aren’t able to pay off your balance every month, so think carefully before swiping.
6. Savings and Cash
Even if you can’t cover the entire amount, each dollar you have in hand to pay for your remodel is one less dollar you’ll have to borrow and pay back, with interest, in the future. But saving can be hard, and it means putting up with a bad bathroom or crummy kitchen for even longer.
Consider all your options and remember that it’s up to each homeowner to weigh all their options carefully and decide just how long they want to wait, and how hard they want to save, before they make a change. And don’t forget, most reputable remodeling contractors will help you create a budget before the project starts and will be a good sounding board when looking at financing options.
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