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Home Improvement Financing Options


If you’re a homeowner looking for ways to pay for a home improvement, there is little doubt that you have quite a few choices. Taking out a home equity loan, a personal loan or doing a cash-out refinance are just some of the options depending on your personal financial situation. 

Here is a breakdown of some of the most common options. 

Mortgage refinance 

If you financed your home a number of years ago and your interest rate is higher than the current market rates, a mortgage refinance can be a great way to pocket the money necessary to pay for your home improvement costs, but it can also be a great way to save on your monthly mortgage payments. 

When it comes to home improvement financing, lenders will typically let you borrow enough to pay off your current mortgage and take out more cash, typically up to 80 percent of your home’s total value. 

Think carefully before you pursue this type of refinance, however. You’ll be using your home as collateral and certainly comes with risk if you miss a payment. 

Home equity line of credit 

A home equity line of credit – or HELOC – as it commonly known, is like a mortgage refinance, but it does not pay off the originally mortgage you took out. Instead, you get a line of credit – typically up to 8- percent of your home’s value, minus the amount of your home loan. 

HELOCs come with both a draw period and a repayment period. During the draw period, which often last about a decade, you can spend the money on your credit line. Then, you will work through a 15-year repayment period. 

Personal loan 

Personal loans are an alternative to using your home as collateral for financing home improvement. When it comes to a personal loan, it is rather likely that you will not have to put up any of your assets up for collateral. 

The reason why is because the majority of personal loans are unsecured loans. What that means is that in order to take out a personal loan you are going to have to have a high credit score.

When it comes to interest rates for personal loans, they are often higher than that of home equity financing because they are unsecured loans. There is also typically a shorter time frame to repay the money – usually about five to seven years. The shorter the payment means a higher monthly rate, but will likely save you money overall as you will be paying less interest charges the shorter your repayment term is. 

Credit card or store credit card

One final great way to pay for a home financing project – especially if much of the project is going to be DIY – is with a new credit card or a store credit card. Particularly, a store such as Home Depot or Lowes, where you plan to get a lot of the materials from. 

One great type of credit card to look out for is one with a 0 percent APR promotional period. Typically, these cards come with anywhere between 6 and 16 months to pay back your balance without any interest rates applied. That means that you can pay overtime without facing any interest charges whatsoever. 

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