Remodeling? Know your loan options
Fortunately, there are a variety of loan options available for homeowners looking to finance their remodeling project. Here are a few ways that homeowners can finally start that home remodel without having to save up all the money first.
If you have good enough credit, you should have a credit card or two with a high enough limit and a low interest rate. Low interest rate cards are perfectly acceptable for financing a remodeling project. Just keep in mind that if you’re wanting to use it to pay a contractor, not all contractors accept credit. Just be careful not to charge more than you can afford to pay back in a reasonable amount of time. If you’re only making minimum payments, you could be paying off your remodel for years and end up paying a lot of interest.
Whether you’re buying new appliances, new flooring, cabinets, or anything else you might need for a remodel, there’s a good chance the store you’re purchasing from offers financing options. Many retailers will even offer no interest financing for 12 months or even 24 months if you pay with their credit card when purchasing large ticket items. Just keep in mind that the interest rates after the no-interest period has ended tend to be very high so make sure you can afford to pay off your purchase before the no interest period ends.
One advantage to taking out a personal loan is that these loans are considered “installment loans.” That means, carrying a balance from month to month won’t hurt your credit score as it would if you were to carry a balance on credit cards or on a line of credit. Personal loans have a fixed repayment schedule and interest rate so you’re more likely to pay it off in a timely manner.
Home equity loan
If you have a good amount of equity in your home, you can borrow against that equity. If you have a pretty good credit score, you can get a very low interest rate compared to other loan options. However, the interest rates are variable so they could go up before you’ve paid off your loan. Also keep in mind that defaulting on a home equity loan could result in foreclosure.
If you have equity in your home but don’t want a home equity loan, you can refinance your mortgage and take “cash out” to pay for your remodeling project. Once again, if you have good credit, you can get a pretty low interest rate. Unlike with home equity loans, these interest rates are fixed. The downside is that you may have to start over with a new 30-year mortgage.
Finally, if you are 62 or older, you can get a reverse mortgage which allows you to tap into the equity you have in your home to pay for home improvements. Reverse mortgages are a good option for older homeowners with less income but sufficient equity in their home. It’s pretty easy to qualify for a reverse mortgage.
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