Whether you are looking to make improvements to your home to prepare for a sale in the near future, are planning on having a new child and need extra room, or simply want to just enjoy you home more, you may be wondering what the best way to get home improvement financing is.
Depending on your personal financial situation and what options are available to you, one option may certainly be better for you than others. That being said, here are the most common forms.
If you are considering a mid-size renovation project for your home, a personal loan is a great way to cover the costs now. After taking out the loan and making the required purchases, you can then pay off the personal loan overtime. Just make sure that the interest rate you get for your personal loan is favorable to you so you do not end up spending thousands of dollars in interest over the life of your loan.
Home equity line of credit
Home equity lines of credit – or HELOCs – are a very popular way to fund home improvement costs because they are a secured loan backed by the value of your home. Because it is a secured loan, HELOCs typically offer some of the lowest interest rates you can get for this kind of work.
One thing to keep in mind here is that you will have to put you home up as collateral. That means that if you don’t make your payments on time, you could lose your home to foreclosure, so only take out a HELOC is you are absolutely sure you will be able to make your payments every month and on time.
Home equity loan
This is another very common way that people pay for home renovations or other large purchase. A home equity loan, also known commonly as a second mortgage, is a loan paid out over a number of years. The great aspect of a home equity loans is that much like your fixe-rate mortgage, the interest rate attached to the loan won’t change across the life of your loan. This means you can comfortably plan for the amount of money you need each month to pay the loan until your entire loan is repaid.
Refinance your mortgage
If you are not interested in taking out an additional loan to pay for home improvement financing, one option that you have is to refinance your mortgage. The way this works is by taking out a new mortgage on your home, with a new interest rate. Since you get to pocket the difference between your first and second mortgage, you could use that difference to pay off any home improvement costs.
People commonly choose to refinance their homes when there has been a drop-in interest rates. That means you could secure a lower rate than you currently pay. Beyond that, if you have paid down enough of your original mortgage, you could have enough from your refinance to contribute to an emergency fund, your retirement, or some other important investment.