Are you thinking of upgrading your home or doing a few renovations? If yes, you’ll need to figure out how you will finance this project.
While there are several different options to consider, each comes with its own pros and cons. Here are 4 options for financing home improvements to help you choose which one is the right fit for you.
1. Paying Out-of-Pocket
Your first option is saving up some money and paying out-of-pocket for home improvements. This option is great because you don’t have to borrow any money and can avoid repaying that amount with interest.
However, saving up enough money to pay for renovations with cash can take a long time. Not to mention, you have to consider that the cash could have been used for other expenses instead or been put into your savings.
2. Tapping Into Home Equity
If you’re trying to renovate your home, borrowing against the home’s equity makes sense. There are a few different ways of going about tapping into home equity.
You can take out a cash-out refinance loan, a home equity loan, or a line of credit. The first option would affect your mortgage, whereas the other two wouldn’t.
Home equity loans generally have lower interest, but you need to keep in mind that you run the risk of losing your home if you’re unable to make timely payments.
3. Taking Out A Loan
A personal loan can be a lot easier to deal with than a home equity loan. Once it gets approved, the process moves much faster, and you can also try to avoid having to pay high closing costs. In the case of an unsecured loan, there is no risk of you losing your house. However, a personal loan will come with a much higher interest rate.
4. Using Your Credit Card
Your last option to finance your home improvements is using your credit card. Certain cards can offer you an interest-free period when repaying the money can be made easier for you. Additionally, spending such large amounts on your credit card can earn you a number of benefits, like credit card points, air miles, or cash-back options.
The only downside to consider is that you will have to be very strict with repayment if you want to avoid high-interest rates. You may also be unable to get a line of credit that is large enough to finance all of the renovations you were thinking of making.
All of these options we have talked about can be good choices for financing your home improvement. However, since each option comes with its own pros and cons, it would be worth your while to consider each option in depth before choosing which one is a good fit for you.