How Does Financing Work When A Home Renovation Is Needed?
There are plenty of different ways to finance a home renovation project, and you may be wondering what credit products are most relevant to you. Here are some of the best options.
Home Equity Line of Credit
The home equity line of credit is a common option for homeowners who want to make updates on their property. The property itself is used as collateral for the loan. Since it's a line of credit, it gives you the option to borrow up to a specific amount against the home and pay it back with monthly payments. You won't pay any interest on the money you choose not to spend.
The reason this works for many homeowners is that you don't know exactly how much the renovation will end up costing, so you don't always want to take out a specific cash amount in loans. A line of credit gives you the opportunity to make updates gradually and pay them back over the course of several years. If you have paid back one home renovation project, your line of credit would allow you to start another one.
Get a Credit Card
Credit cards will allow you to have a line of credit as well. In some cases, people like to get credit cards for smaller home improvement projects because of the rewards. If you are able to finance the projects and pay them back within a short amount of time, you can avoid high amounts of interest on the project. And in the short term, you will rack up some credit card rewards for your project.
Refinance Your Mortgage
You might also choose to refinance the mortgage entirely to include your new loan amounts. This would be a good idea when the overall interest rates you're getting for your home are lower than what you would be eligible for with a new credit application. Check out the home loan services available to you, because your own lender might not be the most financially savvy option.
These are three of the most common loan options, although there are many more for homeowners. If you need a third-party opinion on what credit products you should look into and what budgets you should target for a renovation, speaking with a financial planner is a great idea. They can help you balance the total costs of the renovation with other upcoming expenses over the next several years. For more information, talk to companies like FCN Bank.