Upon deciding to upgrade your home, whether you’re planning to stay there or sell, the topic of money arises quickly. It’s well known that home renovations can be costly. Sure, some small upgrades such as new light fixtures, faucets and paint don’t typically cost a whole lot of money, but remodels are known to snowball and the costs can add up quickly. Thankfully, you have options! Here are 8 of the best ways to finance major home renovations to help you forge ahead, with confidence that you’ll have the financial means to make your vision a reality!
- Home Equity Line of Credit
When buying a home, most people apply for a mortgage. Your home equity is the portion of your home that you have already paid off.
Home renovations are known to be costly endeavours; especially if you have owned your house for over a decade and haven’t done many upgrades within this period. The major benefit to this, is that after a decade of ownership, your home equity should be a sizeable amount.
As long as interest rates remain low, as they currently are, tapping into your home equity to take out a Home Equity Line of Credit (HELOC) can be a great way to fund a renovation. With a HELOC, you can use as little or as much as you need, paying back only what you use, at a rate that is lower than those of credit cards or personal loans.
- Refinance Your Mortgage
Refinancing your mortgage is another viable option to pay for a costly home renovation. Simply put, refinancing your mortgage means adding to the amount of money you originally borrowed to purchase your home. This new mortgage amount is rolled into the current balance on your mortgage.
This option is beneficial in a few ways. First of all, if you do it at mortgage renewal time, you could end up making lower monthly mortgage payments, due to a lower interest rate, while gaining access to the money required to fund a renovation. Second, it is an excellent option for people who want to borrow a definite amount of money. When you refinance your mortgage, you get a set amount of money at a set interest rate; therefore, it isn’t possible to spend more than you have, and the payments will remain consistent and affordable.
- Unsecured Line of Credit
If the first two options are not available to you, it may be worth looking into an unsecured line of credit. Anyone can apply for an unsecured personal loan or personal line of credit through a financial institution.
A line of credit starts out with a set amount of money you can charge against it, and as you pay it back, you can repay the gap funds. However, the downside of this option is the high interest rates. Personal lines of credit will always have far higher interest rates than a mortgage because there is nothing securing it.
- Take Out a Second Mortgage
Instead of refinancing a mortgage or using equity, some people choose to take out a second mortgage to pay for home renovations. This option will provide you with the instant cash you need to complete your project, at a lower interest rate than a personal line of credit or credit card, however it can leave you with double the mortgage payments.
- Credit Card
Not the best option available, due to the high interest rates involved, but using a credit card to finance major home renovations is always an option. While it is instant cash, and credit cards are easy to come by, they come with a hefty fee.
Typically, credit cards have an interest rate of 19.99interest rate or higher – meaning that you will be paying a hefty fee on any residual charges you haven’t paid off come month end.
- Loan from Family or Friends
While not available to everyone, another viable option is borrowing from family or friends. It’s common knowledge that borrowing money can complicate a relationship, but this option comes with the ability to specify repayment terms with the person you are borrowing from, and eliminates the need to use a bank or other financial institution.
- Save and Pay as You Go
If you aren’t in a time crunch to get the renovations done, you can always save and pay as you go. This will inevitably slow down the remodel process, however, it is one of the only ways to ensure that you don’t get overburdened by interest fees on your renovation spend.
- Use your Savings
The final way to pay for home remodels without borrowing funds from another entity is to simply use your savings. This is a good option for those who want to get the renovations done as quickly as possible, and don’t want to be stuck owing money once they are completed.
Take Your Time Before Committing
Now that we’ve reviewed 8 of the best ways to finance major home renovations, it is important to consider other factors such as purpose, time and your personal preference for financing. As you review your options, remember that there is no right choice, but there will be a best-fit option for your needs. A financial consultant can be a great resource in helping you choose your best route for financing.