Summer is one of the best (and most convenient) times of the year to dive into those home improvement projects you’ve been dreaming up thanks to better weather and more daylight. Whether it’s renovating your kitchen, upgrading your backyard lounge space, or tackling some much-needed repairs, summer is the season of home improvement.
Home improvement projects not only make your house into your perfect home, but the right renovation investments are a great way to increase your home’s value. But as you know, home improvement projects can be costly. Without enough money to back your projects, they can sit on the back burner year after year. This can become frustrating for homeowners and make it seem like you’ll never be able to get it done.
Luckily you have options for home improvement financing, and it’s not too late to get started! Here we’ll break down some of the best options for financing your renovations and home improvement projects.
Personal Savings
It goes without saying that if you’re able to use some of your personal savings towards your home improvement projects, it will save you loan interest and offset the costs of borrowing. While you may not be able to fully fund your projects from savings (and you shouldn’t if it will require you to completely drain your savings), you might be able to use savings in combination with another form of financing to help keep interest rates down.
Home Equity Loans
Home equity loans allow you to borrow a lump sum of cash based on the amount of equity you’ve built up in your home. Your home equity is determined by subtracting your outstanding loan balance from your home’s current market value. The higher your home value is the lower your mortgage balance is, the greater your equity will be.
A home equity loan has a fixed interest rate (meaning it will not fluctuate based on the economy) that you’ll pay over a fixed term, anywhere from five to 30 years. These types of loans are also secured by the value of your home, so they likely will have lower interest rates than other lending options, as long as you’re able to keep up with your mortgage payments.
You can spend your home equity loan on anything, but if you use the money towards eligible home improvement projects as described by the IRS, the interest you accrue is tax-deductible. Home equity loans are a great option if you know exactly what your project will entail and what it will cost you.
Home Equity Lines of Credit (HELOC)
A HELOC functions similarly to a home equity loan in that you are awarded funds based on the equity you’ve built on your home. However, rather than providing you with a lump sum upfront, HELOCs grant you access to a line of credit that resembles that of a credit card. You are allowed a certain amount of revolving credit up to a pre-set limit, and once you repay what you’ve borrowed, that credit replenishes. Plus, you only owe interest on the amount of credit you use.
This could be a good option for homeowners who aren’t 100% sure how much their projects will cost as you can use the credit at different points and in different amounts. You may even be able to reserve some of that credit for future use in a project, as the draw period on HELOCs can often last up to 10 years. And just like home equity loans, you may be able to deduct your interest payments for eligible home improvement projects outlined by the IRS.
Cash-Out Refinancing
An alternative option to equity-based financing is a cash-out refinance, which allows you to refinance your existing mortgage loan to a new one that is worth more than you actually owe. Then, you can take the difference in cash.
This is another good option if you know what costs to expect and will be completing tax-deductible eligible projects. However, it’s always important to make sure that the refinance rate you qualify for is lower than your current mortgage rate. Refinancing will get you cash now, but settling for a higher interest rate will hike up the amount you’ll need to pay in the long run. It’s also important to consider how a refinanced loan would change your loan terms and monthly payments.
Ask The Experts!
There are several other ways to secure funding for home improvement projects, like credit cards, personal home improvement loans, and other home renovation programs. Before choosing any financing options for your projects this summer, be sure to speak to a professional. They can help you choose one (or a combination of several) that are right for your home, will make the most sense financially, and how they may benefit you when tax time rolls around.
To speak to our experts at Republic Bank, reach out to us at 800-526-9127, and be sure to check out our other financial tips in our resource library.
