When you’re ready to go for it, be sure to weigh financing options and determine which route works best for you.
Let’s break down the pros & cons of the most popular financing strategies.
(Please note that this post is for basic information purposes only. Consolidated Plumbing Supply is not a financial institution; Speak with your bank about specific loan details as they pertain to your situation.)
Rework Your Mortgage with a Cash-Out Refinance
There are two scenarios where a cash-out refinance could be the right move:
- Interest rates have fallen and your current rate is higher than what’s available on the market.
- You have greater than 20% equity in your home.
Bear in mind that you will be trading short-term costs for long-term obligation. Reworking your mortgage will often add more years to fully paying off your home.
The good news? Remodeling will add significant resale value to your home, helping to offset the costs of interest & fees.
HELOC – Home Equity Line of Credit
Tapping into home equity with a line of credit is a great strategy when you don’t wish to change terms of a primary mortgage.
HELOC rates are generally a bit higher a full refinance rate, but fees are lower and you’ll have flexibility to pay off your renovation loan quickly.
Use a HELOC when you plan to pay down the loan quickly, or if you prefer the flexibility of a line of credit that can be borrowed against in increments.
2nd Mortgage or Home Equity Loan
Similar to a HELOC, a home equity loan does not affect the terms of your mortgage. The difference is that a home equity loan is paid out in one lump sum as opposed to running an adjustable ledger with the bank.
2nd mortgage rates are non-flexible and you’ll have to cash out the full loan amount all at once. However, rates are often lower than a HELOC, and the interest is tax deductible.
Apply for a Personal Loan
Homeowners with excellent credit can apply for a personal loan without putting their home up as collateral.
Personal loan interest isn’t tax deductible, and rates will be higher compared to home loans. The upside is that shorter payoff terms limit the amount of interest paid over the life of the loan.
Personal loans are a popular choice for homeowners who are short on equity.
Pay as You Go with a Credit Card
Higher-income households could reap major cash back or travel point benefits by financing their home renovation with a credit card.
Just be sure to never charge more in a month than you’ll be able to pay off at the end of a billing cycle.