Home renovation projects are not cheap, especially if they are done the right way. The average kitchen remodel project will cost homeowners an average of $20,000. The average bathroom remodel will drain around $9,000 from the homeowner’s pockets, and even a coat of paint on the exterior of the home can be expensive.
Luckily, there are several different financing options available to homeowners in need of funding. At last, that long list of “fix-it projects” can be realized. Here is a quick overview of a few of the most reasonable financing options for home remodeling projects.
Refinance the mortgage
If the current market reflects lower interest rates than a homeowner is currently paying on their mortgage, refinancing may be a beneficial option. As long as the homeowner is up to date on their monthly payments, refinancing should be no problem.
It may seem like a big move for a simple kitchen remodel with new countertops, but refinancing a mortgage loan when the market is more favorable for buyers could considerably lower a homeowner’s monthly payments, freeing up extra funds to be allocated on a remodeling project.
Take out a home equity loan
Replacing those old countertops with a more durable material like natural stone or quartz will raise the value of a home much more than simply applying a new coat of paint, but a job like that costs a bit more money.
Taking out a home equity loan is one of the most commonly used methods of financing a major remodeling project around the house, and they typically have a much lower interest rate than other financing options. A home equity makes more sense if the homeowner already has a great interest rate on their mortgage, because it will not lead to a refinancing of the original loan.
Another viable financing option for a home remodel is a cash-out refinance. A cash-out refinance taps into the home’s built-up equity, allowing the borrower to acquire up to 80 percent of the property’s overall value. It is a more suitable option for those who do not qualify for an equity loan.
It is strongly recommended that a person fully understand the ramifications of a cash-out refinance. It is essentially using a home’s value as collateral for a much larger loan. Though a remodel will add equity to the home, there is still a bottom line debt that must be paid. Consider financing options carefully.
Take out a home equity line of credit
A home equity line of credit is a different way to borrow funds against the value of a home. It is unlike a cash-out refinance or a home equity loan in that it does not pay off the original loan.
Instead, the homeowner is extended a line of credit on their home’s value for up to 80 percent of its worth, minus the amount the homeowner still owes on the original loan. A HELOC should be carefully considered as it can raise the monthly payments for homeowners.