Starting a home renovation project is not only about making your house look more attractive. Other reasons could be to cut down utility costs, add space for your kids, or boost the value of your home. Financing these improvements for your home can be done in various ways, such as using credit card, mortgages, and home equity for renovations.
Here are your options for financing your home renovation project:
- Credit Card
For small projects and repair jobs, and especially if you intend to do the job yourself, you can use your credit card to buy tools and materials. Make sure to check the interest rate of your credit card, particularly if you’re planning to take out a cash advance, which has significantly higher rates. Another factor to consider is how long it will take you to pay off the purchases. Be fairly certain you can finish paying off the debt in a short amount of time to avoid steadily compounding credit card debt.
- Home Equity Loan
These loans are “second mortgages,” still with your home as the collateral. They have higher interest rates than the original mortgage (first mortgage) because home equity loans pose more risks for the lender. Other costs are also included in the home equity loan, such as the appraisal fee for your house, and legal fees. The payment and interest rates are fixed, however, and you receive a lump sum.
- Personal Loan
Personal loans and personal lines of credit have slightly higher interest rates than home equity loans but lower than credit cards. The personal loan is more convenient when you need a larger amount or a lump sum for a one-time purchase. Compared to personal lines of credit which are more flexible, the amount and interest charge for personal loans are fixed throughout the payment period, usually between one to five years. If you’d like to have a new loan after you’re done paying off the current one, you will need to reapply.
- Mortgage Refinancing
Mortgage refinancing is different from the home equity loan. This loan is exchanged for your original mortgage. It will have more advantageous terms and you can make use of it or a part of it to finish paying for your first mortgage. The rates for mortgage refinancing are also lower than personal loans and credit cards. For a large renovation project, you can consider mortgage refinancing.
- Home Equity Line of Credit
If you need your cash made available gradually for buying items over the course of a few months, one of the most practical options offered by financial establishments is a home equity line of credit. The interest rate is minimal, but there are other fees to pay for, such as house appraisal. This line of credit is also revolving, so if you need it again, there’s no need to reapply.
Once you’ve looked at all your options, you can decide on the financing method that fits your situation. If you’re having second thoughts, think about whether the renovation is a need, an investment, or something that can be delayed. You might change your mind about the renovation project and scale it down to suit your budget.