How to Pay for Home Remodeling
Refinance your mortgage using the "cash out" method., Obtain a home equity line of credit., Obtain a second mortgage on your home., Seek a personal loan secured on another asset., Pay for the home remodeling with consumer credit.
Step-by-Step Guide
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Step 1: Refinance your mortgage using the "cash out" method.
A popular method of funding home improvements is called a cash out refinancing.
This means swapping your existing mortgage for a new one, and converting some of your accumulated home equity into cash in the process.
This is an especially tactful move if interest rates are low.
However, be aware that doing this reduces the amount of equity you have in your home, and thus will extend the amount of time you spend making mortgage payments. -
Step 2: Obtain a home equity line of credit.
Another way of getting cash for home remodeling is by setting up a home equity line of credit.
This is an open-ended credit agreement that is secured on the equity in your house.
It functions like a credit card in that it has an overall spending limit, and you can carry a balance over from month to month.
Using debt secured on your own home equity makes sense for funding remodeling, as remodeling projects often increase your equity anyway. , A second mortgage, often called a home equity loan, is structured just like your existing mortgage.
The key differences are that the term is usually shorter and the interest rate will be higher because the second mortgage is subordinate to your existing mortgage.
When pursuing a second mortgage, take on only as much extra debt as is needed to finish the remodeling. , Loans for home improvement do not have to be secured on your home equity.
Lenders are often willing to extend loans secured on other large assets such as cars.
These loans will tend to have shorter terms, so you should ensure that you are able to pay the money back in time. , This is one of the least favorable options for financing home renovations, as interest rates are high and the unrestricted nature of consumer credit can encourage abuse.
Aim to use consumer credit only for emergency home repairs, and pay off your balance as quickly as possible.
Note that abusing consumer credit can easily damage your credit score and further prevent you from securing home equity loans and lines of credit. -
Step 3: Obtain a second mortgage on your home.
-
Step 4: Seek a personal loan secured on another asset.
-
Step 5: Pay for the home remodeling with consumer credit.
Detailed Guide
A popular method of funding home improvements is called a cash out refinancing.
This means swapping your existing mortgage for a new one, and converting some of your accumulated home equity into cash in the process.
This is an especially tactful move if interest rates are low.
However, be aware that doing this reduces the amount of equity you have in your home, and thus will extend the amount of time you spend making mortgage payments.
Another way of getting cash for home remodeling is by setting up a home equity line of credit.
This is an open-ended credit agreement that is secured on the equity in your house.
It functions like a credit card in that it has an overall spending limit, and you can carry a balance over from month to month.
Using debt secured on your own home equity makes sense for funding remodeling, as remodeling projects often increase your equity anyway. , A second mortgage, often called a home equity loan, is structured just like your existing mortgage.
The key differences are that the term is usually shorter and the interest rate will be higher because the second mortgage is subordinate to your existing mortgage.
When pursuing a second mortgage, take on only as much extra debt as is needed to finish the remodeling. , Loans for home improvement do not have to be secured on your home equity.
Lenders are often willing to extend loans secured on other large assets such as cars.
These loans will tend to have shorter terms, so you should ensure that you are able to pay the money back in time. , This is one of the least favorable options for financing home renovations, as interest rates are high and the unrestricted nature of consumer credit can encourage abuse.
Aim to use consumer credit only for emergency home repairs, and pay off your balance as quickly as possible.
Note that abusing consumer credit can easily damage your credit score and further prevent you from securing home equity loans and lines of credit.
About the Author
Patricia Armstrong
Enthusiastic about teaching pet care techniques through clear, step-by-step guides.
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