Making the right financing choice can make all the difference when improving your home.
- Home improvements can be expensive.
- There are several options to cover the costs of home improvements.
- Saving for improvements is ideal, but you could also tap into home equity or borrow using other types of loans.
If you are upgrading your home, you’ll need to determine the best way to pay for any changes you are making. The good news is, there are multiple different financing options you can consider.
There are pros and cons to each different method of paying for home improvements, so be sure to consider each of these four choices carefully to decide which one is best for you.
1. Paying cash
If you are able to save up money to pay for your home upgrades out-of-pocket without borrowing, this option can be a great one. You’ll be able to avoid paying interest, so you won’t add additional unnecessary costs. And since you won’t be committing to a future monthly payment, your home improvement project won’t affect your finances for months or even years in the future.
There are downsides though. You may end up tying up a lot of cash in your home that you could’ve used to do other stuff — such as investing. You may also need to wait a long time to make upgrades if it takes you months or years to save the money you need.
2. Tapping into home equity
Since you’re improving your home, it can make sense to borrow against the equity in your property in order to do so.
You could do this by taking out a cash-out refinance loan, which would mean you get a whole new mortgage to pay off your old loan but borrow an additional sum of money on top of what you currently owe. This could be a good choice if you can reduce the interest rate on your existing home loan, as this option can sometimes save you money in the long term.
You can also take a home equity loan or line of credit, each of which allows you to borrow using your home as collateral without affecting your current mortgage.
The benefit of borrowing against home equity is that you will generally end up with a lower interest rate than …….