Time to get down to business. The major questions here are should you borrow money to put in that new deck or remodel that dated kitchen. If so, should you use home equity to do so. There are many options open to you today to help you accomplish your goal.
Banks, Saving & Loans, Mortgage brokers, 0% credit cards, and personal loans to name a few. Many programs are available to you even if you have little equity or a less then perfect credit record.
The method of payment you choose should be influenced by several different factors. You decision depends on your current funds, ability to repay, interest rates, closing costs, risk tolerance, and the necessity or urgency of the needed work.
If your home upgrade doesn’t involve urgent repairs such as replacement of water heater, furnace, etc. then consider a saving plan with regular deposits. For less expensive remodel projects, this may be just the ticket. You’ll pay no interest and eliminate the risk inherent in using your home, vehicles or other assets as collateral. You’ll also tend to be more frugal and down to earth in your decisions on materials and scope. This frugality will tend to result in a higher return on your remodeling investment when you sell your home or refinance in the future.
0% Interest Credit Cards
These unsecured credit cards are often offered to those with decent credit. This may be a very viable option for smaller projects less the $10-$15,000 in cost. Check the amount of time the 0% interest is valid for and insure you will be able to repay the amount within this time. A common 0% interest offer is 12-18 months. Be sure to check the terms. Cards not payed off within the specified time period may charge very high interest and it may be retroactive to the time the card was first used.
A personal loan is another option for small to mid-sized projects generally less than $40,000. An unsecured personal loan will provide a longer payback time then credit cards and probably a higher loan amount also. Interest rates will tend to be higher then on loans secured against your home and there are no tax benefits as with home mortgage loans. Watch for “fly-by-night” lenders here and make certain you read and understand all terms.
Home Secured Loans
Cash out refinances involve refinancing your home with a brand new mortgage while taking the equity your have built up out to use for your home remodel. There may be high closing costs and watch the interest rate. This can be a great option if interest rates are now lower then your current mortgage.
Getting a second mortgage on your home is another option which gives you fixed amount right now with a set repayment schedule over 15 years or so. Again, watch interest rates and early repayment penalties.
A third option is a home equity line of credit. This operated much like a credit card. You use your line of credit as needed over a period of time and then pay back over another set period of time (10-15 years). Interest rates for this type of loan may vary.
Which should I choose
What you choose is personal with many factors coming into play. Also there are literally hundreds of different terms available at any given time from hundreds of lenders. Offers vary by credit history, geographic location, current financial picture and much more. A mortgage broker may be a good first stop if you want to go the mortgage route. He can find and offer you a lot of options from a lot of lenders at one time and advice you on what is available.