Home renovation can be an expensive process but it’s still recommended especially because of the different benefits it gives the homeowners. This includes increase in the resale value of your home, better quality of life, and sometimes, lesser utility bills. Although many aspects about home renovation are flexible, one thing is certain – you’ll need to money to make it happen.
So to help you out, we’ve prepared interesting facts about the different home renovation financing options you can choose to help you plan your remodeling realistically.
Cash. This pertains to the most readily available money you have like in your savings account or savings bonds near maturity. The good thing with such option is there are certainly no fees, extra charges or interest. However, this will surely deplete any reserves you may have and sadly, not all individuals have a lot of cash available to spend for home renovation. Therefore, cash remains the best way to finance a home renovation project, especially if it’s just a minor project, but only if you’ve got plenty to spare.
Credit Card. If you’ve got an existing credit card with enough credit limit to spend for your home remodeling project, lucky for you since you can now skip the hassle of waiting for a loan approval. There are credit cards that you pay off at the end of every month while there are those zero-interest cards that you don’t need to pay off for six months or a year. The advantages of such option include money being quickly available and other cards accumulate points or rewards, which you can later on enjoy. However, you need to be careful about the high interest rates and fees, plus it actually gives you a false sense of security that you have more money than what you actually have.
Bank Loans. This option is considered the most straightforward way to financing a renovation. You can do fixed repayments, which will be withdrawn from your bank account at regular intervals – weekly, biweekly or monthly. If you’ll choose this option, you’re encouraged to do weekly payments as it can reduce the amount a lot quicker than a single monthly payment without costing you a cent.
Personal Loan. With this financing option, you will pay regular payments of principal and interest for a certain time frame, usually one to five years. You’ll also have the option of a fixed or a variable interest rate for the term of your loan, which is typically lower than that of the credit card.
Home Equity Loan. This option is the traditional way to finance a home remodeling project wherein your home’s value less the cost of the mortgage is used as a collateral or security. The advantages of this option include the fact that you can get a huge amount of money for large projects and it comes with lower interest rates compared to personal loans and credit cards. Sadly, if you continue to deplete your equity, you also lessen the sum you will get once you sell your house. Plus, you are pushed to spend on unnecessary things unrelated to the renovation because of the huge amount of money available.
Mortgage refinancing. This option allows you to spread your repayment over a long period of item at mortgage interest rates usually lower than credit cards or personal loans especially during funding your major home renovations. It also allows you to borrow up to 80% of the appraised value of your home but you’ll have to spend for legal and appraisal fees as part of the initial set-up costs.
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