Whether you’ve lived in a house for years or only for a few months, it’s normal to want a bit of change. Making home renovations can help you make the necessary changes, although paying for those upgrades can add up quickly. However, there is more than one way to finance a major home update.
People often use credit cards as an alternative payment method for home improvements. However, you need to be mindful if you choose to go this route. Overspending can cause your credit score to drop and negatively impact your credit.
If you’re planning on using your credit card to finance your project, budgeting is your best friend. With a proper budget, you’ll know exactly how much you’re going to spend and prevent yourself from accidentally maxing out your credit cards.
Home Equity Loan
Another financing option is a home equity loan. A home equity loan is a special type of loan that gives you funds based on the value of your home. The lender uses an appraiser to determine how much your property is worth and then gives you the amount. Your home is put up as collateral, so think of this loan as another mortgage.
A home equity loan is a great way to finance major home renovations because you’re often given a large sum of money right away. What’s more is that you can pay the debt off over time, similar to your mortgage payment.
Refinancing Your Mortgage
A refinanced mortgage and a home equity loan may be paid off in a similar manner, but they’re not the same thing. A refinanced mortgage is when your current mortgage is swapped out for a new one with another interest rate. You may be wondering why you would want to essentially renew your mortgage payments.
When you refinance a mortgage, you get the difference between the new one and the amount of the old one. In other words, you could potentially receive a lot of cash depending on how big the difference is. But one thing to keep in mind is to only consider these options when you know you’ll receive a lower interest rate. Do not refinance your mortgage if the rates are higher.
Home Improvement Loans
You may be thinking that a home improvement loan isn’t worth the time if you can just receive a home equity loan instead. However, you shouldn’t underestimate your options. Home improvement loans are less restrictive than home equity loans.
You don’t need to offer your house as collateral, which makes this an unsecured loan. Furthermore, you can apply for this loan at a bank or online. But due to having less restrictions, the interest rates are typically higher.
Funding a major home update doesn’t mean you have to drain your bank account. The options listed here can help you afford it, but as with any major purchase, it’s a responsibility.