Purchasing a property may be the first step to living in your dream home. Whether it’s adding a room, building a pool or anything in between, home renovation can be a financial burden outside the world of mortgage rates and closing costs. Luckily homeowners have a number of options when it comes to paying for home renovations. The important part is figuring out which method works best for you.
Qualifying for a credit card may be easier than getting a loan from a bank, but it can also be riskier. Credit card interest rates tend to be high, meaning that if you use your credit card for large renovation projects and don't pay your balance in full each month, the amount you owe can skyrocket quickly. Also keep in mind that keeping the balance for too long can harm your credit score. If you do plan on using a credit card to pay for home renovations, use it sparingly and only for smaller projects. Also try to find a credit card with low interest rates and generous repayment terms.
If you qualify for a personal loan, there’s a good chance that your interest rate will be lower than if you used a credit card. In addition, you will have the option to choose a fixed or variable interest rate. However, it’s important to make sure you can stay up to date with payments that will likely span a number of years. Also keep in mind that unlike credit, a personal loan is a one-time lump sum. This means that once the loan is paid off, you have to reapply to access more funds.
Home equity loan
As its name implies, a home equity loan allows you to access your property’s equity in the form of cash. The interest rates are very favorable on home equity loans, making them more economical than a regular personal loan. However, it’s important to remember that a home equity loan uses your property as a guarantee, meaning that failure to repay your home equity loan could result in losing your home. In addition, there are usually legal and appraisal fees applied to a home equity loan.
Home equity line of credit
A home equity line of credit is very similar to a home equity loan, but instead of receiving one lump sum payment a home equity line of credit allows homeowners to go back and access their home’s equity whenever they need. A home equity loan can offer more freedom and flexibility than a home equity loan, letting you borrow as you go. However, the risk of losing your home if you fail to repay remains.
Depending on what type of renovations you’re making, it may be possible to receive funding from the government and utility companies. Making your home more energy efficient could make you eligible for grants of up to $5,000, in addition to special rebates. Even better, these types of renovations will also help you save money on energy costs for your home, resulting in even more savings.
Refinancing your mortgage can allow you to borrow up to 80 percent of your home’s appraised value, letting you repay the loan over an extended period of time. Not only will this help you lower your monthly payments, but if you do this at a time when rates are significantly lower, the savings can add up fast. However, mortgage refinancing will come with fees attached for legal processes and appraisal. Before you refinance your home loan, make sure the math works. No point in taking this action if you won't be saving money in the long run.