Choosing the right financing can make all the difference in improving your home.
- Do-it-yourself jobs can get expensive.
- There are several ways to cover the cost of renovation work.
- Saving for improvements is ideal, but you could also tap into home equity or use other types of loans.
When you’re updating your home, you need to determine the best way to pay for the changes you’re making. The good news is that there are several different financing options that you can consider.
There are pros and cons to each of the different payment methods for renovations, so you should carefully review each of these four options to decide which works best for you.
1. Cash payment
If you’re able to save money to pay for your home upgrades out of pocket without having to borrow, this option can be a great one. You can avoid paying interest, so you don’t incur additional unnecessary costs. And since you’re not committing to a future monthly payment, your home improvement project won’t impact your finances for months or even years into the future.
However, there are downsides. You may end up tying up a lot of money in your house that could have been used for other things – like B. Investments. You may also have to wait a long time to upgrade if it takes months or years to save the money you need.
2. Unlocking Home Equity
As you improve your home, it may make sense to borrow your property’s equity to do so.
You could do this by taking out a cash-out refinance loan, which means you get a whole new mortgage to pay off your old loan, but borrow an extra sum of money on top of what you currently owe. This could be a good choice if you can lower the interest rate on your existing home loan, as this option can sometimes save you money in the long run.
You can also take out a home equity loan or line of credit, each of which allows you to borrow your home as collateral without affecting your current mortgage.
The benefit of borrowing against home equity is that you generally have a lower interest rate than other types of debt, and you should be able to deduct the interest when you file your taxes because you’re using the money to do so improve property. However, there are downsides too, including high closing costs and the fact that using your home as collateral for the loan puts you at risk of losing the property if you can’t make payments and the lender goes into foreclosure.
3. Taking out a personal loan
A personal loan is another good financing option for home renovations. Some big advantages of this type of loan over a home equity loan are the fact that approval should be quicker and easier, and you can avoid paying high closing costs. You should also be able to get an unsecured loan and that means you don’t have to risk your home. The downside, however, is that your personal loan will likely have a higher interest rate than a home equity loan.
A personal loan also has advantages over another option – credit cards. Compared to credit cards, a personal loan gives you a fixed payout period and usually a lower interest rate. But you may not be able to take advantage of the unique benefits cards can offer, such as: B. a 0% interest period or credit card rewards.
4. Use of a Credit Card
Finally, a credit card is another option. Credit cards can be a quick and easy way to access money, which is a huge benefit. If you can qualify for a card with an introductory 0% APR on purchases, you might even be able to borrow an interest-free loan for about a year to 15 months — which can make financing home upgrades cheaper. And you could potentially earn points, miles, or cashback for charges on your card.
The downside, however, is that you may not be able to get a large enough line of credit to fund the improvements, and you could end up paying hefty interest if you don’t pay off the loan before the card’s standard rate is within your payout period can also be long and uncertain if you only make minimum payments.
Ultimately, each of these options is worth considering, and you should weigh the pros and cons of each before deciding which one works best for you.
The top credit card is wiping out interest rates by the end of 2023
If you have credit card debt, transfer it to this top balance transfer card secures you a 0% introductory APR until the end of 2023! Plus, you don’t pay an annual fee. These are just some of the reasons why our experts rate this card as a top choice for getting your debt under control. Read the full review of The Ascent for free and apply in just 2 minutes.