What’s the best way to finance a home renovation?

What’s the best way to finance a home renovation?

With the new year, you may be considering making some changes to your existing home. Here’s a look at some ways to pay for those home renovations.

1. Home Equity Loan – A home equity loan is a loan that’s secured by your home’s value. Home equity loans allow you to borrow a fixed amount of cash, which you receive in one lump sum. Keep in mind the upfront fees can be costly, receiving all the funds at once may cause you to spend more than you need, and the amount you borrow may not be enough so you’re left with an unfinished renovation.
2. Credit Cards – Credit cards may be good for minor touch-ups and maintenance, but for funding bigger projects, you’re better off looking at other options. Keep in mind you may be stuck paying high interest rates and your credit score may be negatively affected by the large, unpaid balance.
3. Personal Loans – Personal loans are short-term loans that may or may not be secured by a form of collateral. If you can qualify for a low rate, personal loans could be an option. Keep in mind that upfront costs and interest rates could be too high to make personal loans a viable option, and like home equity loans, you may receive more than you need causing you to spend more on the project.
4. Retail Credit Cards – You may be tempted to finance home renovations on a store credit card provided the establishment has what you’re looking for. But keep in mind that retail credit cards in general can have very high interest rates, and again, if there’s a lot of credit extended to you, you may be tempted to overspend. Also, if you’re trying to do most of the work yourself, typically these credit cards will only pay for products and won’t cover hired labor costs for more complicated projects.
5. Merchant Loans – A merchant loan is taken out against a business’s anticipated revenue. Keep in mind merchant loans tend to have high interest rate, and you’ll probably need to pay a fixed percentage of our sales toward the loan repayment.
6. Home Equity Line of Credit (HELOC) – A HELOC is an open credit line secured by your home’s value. In general, a HELOC has an adjustable interest rate and a “draw” period for accessing the funds. Keep in mind that HELOCs may help you stick to your budget since you can withdraw the money as needed. Upfront costs also tend to be lower for HELOCs than for other loans. Some lenders may allow large withdrawals to be converted into fixed-rate loans, and some may even extend your credit line when the “draw” period ends. Also keep in mind that you’re only paying interest on the money you withdraw.



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