Making improvements to your home will make your space look more personalised over the long run and boost the home's value. As beneficial as projects for home improvement are, costs begin to grow rapidly. Here are 5 of the easiest ways to fund home improvements if you do not have the cash available to accomplish your goals:
HELOC (Home Equity Line of Credit)
The flexible financing option many homeowners need could be a HELOC. With this type of finance, the borrower will have access to a set amount of home equity and can use it anytime when they need it, whether in the form of increments or all at a time up to the total amount they have been approved.
The borrower draws on the line of credit as required, and then pays interest only on the amount used. In the case of a change order or any unforeseen scenario that happens and raises the expense of the renovation, a flexible line of credit may be useful for budgeting for the renovation and for providing a back-up plan. It can also be beneficial for the execution of long-term projects in phases to have the credit line open.
Usually, HELOC interest rates are variable, which means that, depending on market conditions, they can increase or decrease. If you're looking for a fixed rate, a home equity loan could be a better choice.
Home equity loans
Home equity loans are similar to HELOCs in that both are focused on the amount of equity that has been built up over time. In this option, the equity is converted into a fixed-rate loan instead of having access to a revolving line of credit.
One advantage of getting a home equity loan is interest rate stability instead of HELOC. Usually, the loans have a fixed interest rate, because the borrower understands how high each payment is going to be well in advance.
Cash-out refinancing is equivalent to home equity loans in that the amount you receive is based on available home equity and is given to the borrower in a lump sum. The only major difference is that your mortgage is replaced by a cash-out refinance, while a home equity loan is completely a different account.
When deciding between cash-out refinancing and home equity loans, interest rates alone may not be the best way to decide the right choice. Often, when making your choice consider other factors such as loan term, loan balance and long term plans. A mortgage loan officer will help you find the right way to do that.
Use a loan to pay for home renovations
Although it can be beneficial to use acquired home equity in certain cases, there are other situations where choosing a different path may be a better option.
If you don't have a lot of equity built up in the first place, you could be better off letting it accumulate longer and looking for another strategy to pay for your home renovations. This way, just as it is beginning to expand, you will not deplete this resource.
One of the most impactful elements of any loan is the rate of interest. If you have a low mortgage interest rate, it could be replaced by a heavier one that could cost you more in the long run, increase your payments, or add to the duration of your loan if you get a cash-out refinance.
Credit cards and personal loans are two common options for funding home improvement loans without home using equity.
In previous years, many homeowners have been able to deduct interest payments on home equity loans and lines of credit while filing their taxes, making these valuable investments. However, the new tax law introduced at the end of 2017 imposed limitations on this advantage, making it less attractive to some borrowers. As a consequence, others may be more likely to take a personal loan into account.
Credit cards are similar to HELOCs in that both are revolving loans, meaning that if required, the borrower will draw funds. As any other form of loan, the interest rate is important when selecting a credit card for home improvement projects. Credit cards can have higher rates than various forms of loans, but there are also low introductory APRs on several cards. By using a credit card with a favourable initial interest rate and making an effort to pay off the balance by the time the introductory rate ends, borrowers could benefit.
If you’re planning for any home improvements, contact a Home Renovation Contractor in CT