How to Finance Your Home Renovation
Guest post by : - Andrew
Through time, houses normally deteriorate. Renovation may not be an option but a necessity especially because you need to maintain the quality of your life as you live in it. You may also need to renovate if you intend to boost the property’s resale value. However, renovating your home may be costly.
Through time, houses normally deteriorate. Renovation may not be an option but a necessity especially because you need to maintain the quality of your life as you live in it. You may also need to renovate if you intend to boost the property’s resale value. However, renovating your home may be costly.
Fortunately, there are now many financing options that are available. Your choice of the right option could depend on several factors. Those include the amount you need, your current home equity, the timeline, amortised payments, and your comfort level for repayment.
Before you get into renovation discussions with contractors, you should first obtain a pre-approval from a lender. This way, you would determine how much you could possibly spend for the project. Give your contractor a budget that is about 10% less than how much you have been approved for so you could still have money to spend for inevitable and additional costs. Here are the financing options to look at.
Home equity loan
In this credit facility, you would borrow an amount, which is secured against the property. The repayments would be amortised over a few years. Monthly payments and interest rates are usually fixed throughout the loan term.
You may opt to make additional payments on top of your conventional first mortgage. The home equity loan may carry a higher rate than a mortgage refinance. On the upside, closing costs could be lower. This is an alternative to refinancing.
Mortgage refinance
If you have an ongoing home loan, a refinance could be one way to get another loan using the same property as collateral. When you refinance a home loan, you could repay the existing mortgage in full (what is left) and use the excess amount to pay for your home renovation.
Mortgage refinance is like extending your current mortgage just so you could get an amount you need for the renovation. You could get a loan with the same or lower interest rate/monthly repayment. The loan term could be lengthened.
Line of credit
A line of credit on your home equity could be an ideal finance option for home renovation. It is good if you intend to finance the project in stages. You may obtain a loan approval for a specified maximum amount. You would withdraw only the amount you need, only when needed. Along the way, if there are additional expenses for the renovation, you could still withdraw some amount until you have fully used the amount allotted to you.
You may fully use up the loan amount or not. The good thing about this product is that you get to pay interest only for the amount you have withdrawn. This option would give you more freedom in managing the loan amount and the renovation expenses.
Personal loans
If the renovation would not cost a lot, you may cover it through a personal loan. Interest rates on personal loans could be lower compared to rates of refinancing but higher compared to home loans. But such loans are still more practical than using credit cards. The loans could be secured or unsecured and are usually obtained much faster. So which financing option is best for your home renovation project?
Categories:
home loan,
mortgage,
personal finance
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I'm planning to remodel our house, and I don't know where to start. With these tips, I think I know now what to do. They're very helpful. Thank you.
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