The coronavirus pandemic has had an impact on the number of Americans who spend and invest their money, according to a survey of more than 2,000 consumers by Goldman Sachs.
While the majority of respondents said they would continue to spend the same, about 1 in 5 said they would spend more after the pandemic. Of those, more than a quarter (27%) said they plan to spend more money on home renovations.
Home improvement projects can be considered a long-term investment because they can increase the value of your home and make it more attractive to buyers. A recent study found that homeowners can earn up to $ 200,000 in value by renovating.
But home renovations can come at a significant initial cost – a major kitchen or bathroom renovation can cost on average around $ 75,000, according to a recent analysis by Remodeling magazine. Some of the most valuable home renovations are basic replacements, such as a new garage door, new windows, or new exterior siding, the data shows. You can also add value by redesigning your kitchen and bathrooms, some of the most used rooms in your home.
Fortunately, you may be able to tap into the equity in your home or even borrow a personal loan to finance home renovations.
Keep reading to learn more about the different types of home improvement loans. If you decide to borrow money to pay for home repairs or renovations, visit Credible to compare interest rates from multiple lenders at once without affecting your credit score.
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3 ways to finance home improvement projects
Making improvements to your home doesn’t have to leave you with high interest credit card debt. There are many ways to pay for home improvement projects without breaking the bank, including:
- Mortgage refinancing in cash
- Home equity loans and HELOC
- Personal home renovation loans
Compare your options below to see which home improvement loan is right for you.
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1. Mortgage refinancing with withdrawal
Mortgage refinancing happens when you take out a new mortgage with better repayment terms to replace your current mortgage. With mortgage rates nearing all-time lows, it may be possible to lock in an interest rate that is much lower than what you are currently paying.
Cash refinancing is when you take out a larger mortgage to pay off your current home loan, accessing the difference in the form of a lump sum cash. For example, if you owe $ 180,000 on your current mortgage, but your home is worth $ 350,000, you may be able to borrow a new mortgage worth $ 230,000 to access $ 50,000 of home equity. your home to use for home renovations.
Here are a few things to know:
- Refinancing a larger mortgage can increase the cost of interest over time. You may be able to recoup the costs by getting a lower mortgage rate.
- If you refinance a larger mortgage over a shorter repayment period, you can reduce additional interest charges. However, your monthly mortgage payment will be higher.
- Mortgage refinancing comes with closing costs, which are between 2% and 5% of the total loan amount, according to Credible. Closing costs are usually included in the loan.
You can compare mortgage rates for refinance with withdrawal on Credible to make sure you get the lowest possible rate for your situation.
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2. Home equity loans and HELOC
Another way to tap into the equity in your home is to take out a home equity loan, also known as a second mortgage. Home equity loans offer a lump sum of money at a low fixed interest rate, using your home as collateral. The biggest risk in taking out a home equity loan is that you risk losing the roof over your head if you don’t pay off the loan.
You may also want to consider a Home Equity Line of Credit (HELOC), which is similar to a home equity loan but offers a different way to access cash. With a HELOC, you borrow money as needed at a variable interest rate. This way you don’t accidentally overborrow based on the contractor’s estimates.
Like mortgage refinancing, home equity loans also come with closing costs. But as a bonus, interest on a home equity loan or HELOC is tax deductible as long as the funds are used to make renovations to your home.
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3. Personal loans for home improvement
If you’re looking for a way to finance home renovations without dipping into your home’s equity or putting down collateral, you might consider an unsecured personal loan.
Personal loans offer quick lump sum financing with a fixed interest rate and a monthly payment. You may be able to access the funds the next business day after the lender’s approval, which means you can start renovating your home right away. In contrast, home equity loans and mortgage refinancing can take weeks to process.
Compared to secured forms of financing, however, personal loans come with relatively high interest rates – especially for borrowers with low credit scores – as well as origination fees. But if you have good credit, you may be eligible for a competitive offer when you borrow money to renovate your home. In addition, some personal lenders offer a discount on automatic payment.
Since personal loan interest rates vary depending on a number of factors, including a borrower’s creditworthiness, it’s important to shop with multiple lenders online to avoid higher interest rates. . You can compare personal loan rates for free on Credible to make sure you get a low interest rate.
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