4 Financing Options to Consider When Starting a Home Improvement Project
If you’re planning to do any type of home improvement project, chances are you’ll need to finance it. There are four basic ways you can go about financing a project like this.
1. Personal Loans: If you have a home improvement project in mind, one of the first things you should consider is whether you should finance the project or pay for it all at once. If you have a good credit score, obtaining home improvement financing shouldn’t be a problem. This type of loan is delivered in a lump sum with a fixed rate, payment and terms. Should you decide to go this route, be extra mindful of your budget. Receiving the entire amount in one lump sum can often lead to overspending.
2. Home Equity Loans: A home equity loan is a type of loan secured by your home. You can use home equity loans to consolidate debt, pay off credit cards, or finance home improvements. Home equity loans typically have lower interest rates than other types of loans and have a fixed payment based on the payment terms. A home equity loan is generally an ideal route to take. However, if you run into unforeseen expenses or costs, the amount you borrow may not be enough to complete the project.
3. Credit Cards: Credit cards can be sufficient for smaller home remodeling projects, for instance, painting your outdated cabinets. However, funding larger scale projects, such as a full kitchen remodel can be catastrophic to your credit and your long-term costs. Credit cards are ideal for fronting money that you can quickly pay off before accruing interest. For example, if you have a credit card with a 15% APR*, you’re going to pay much more in the long run if you aren’t able to pay off the card quickly. Carrying a high balance on your credit card may also negatively affect your credit score. Another thing to be wary of; retailers who encourage financing your home renovations on their store credit card. While this sounds convenient, especially if they include a special upfront rate, many store credit cards carry even higher interest rates than alternative financing options.
4. Home Equity Lines of Credit (HELOC): HELOCs can be a great way to finance home improvements in a way that works for your budget. A HELOC ]is a line of credit that you can draw on whenever you need to make home improvements. You can use the line of credit to finance renovations to your kitchen, bathroom, appliances, etc. an open credit line is similar to a credit card, you can borrow from it when you need the funds as long as you don’t exceed the credit line limit. While you only pay interest on the amount you use on the credit line, because there is a variable interest rate, the monthly payment can vary. Besides offering more flexible terms and saving you money, remember that a HELOC uses the equity in your home to collateralize the line of credit. If you’re using the HELOC for a home renovation, you’re probably adding to the home’s value. When you decide to sell your home, a HELOC may actually pay for itself.
When you partner with Unity Catholic for your next home project, get the information you need to make the best financial decisions for your project and your future.