Planning to remodel your kitchen or bathroom? Or maybe you’re upgrading your windows, adding a whole-house generator, or making other updates to your home?
With people spending more time than ever at home due to COVID, Americans are undertaking plenty of home improvement projects, and our clients are no exception. The frequently seek our input on the best way to pay for the latest remodeling project.
That’s why it was so helpful to talk to veteran financial writer Robyn A. Friedman for City & Shore magazine to compare all the different options for financing a costly home project.
“A cash-out refinance makes sense for bigger projects where you need access to a lot of money and want to pay off the work over many years,” Mari told Robyn. Some mortgage refinances may even allow you to lower your interest rate or save on the overall interest bill by shortening your mortgage’s maturity date.
A HELOC (Home Equity Line of Credit) is also a popular option, Mari explained, and banks often waive the closing costs. But interest rates aren’t usually locked in and can creep up over time. Due to that uncertainty, you have to go into the project with a solid plan for paying off the loan balance over time.
If the project’s costs are more modest, you may be able to use your cash savings, but many consumers prefer to look into personal loans or contractor financing since interest rates remain so low. But be careful putting that remodeling project on your credit cards, Mari cautioned, as high interest rates can turn a mid-size project into a money pit, and costs often exceed your original forecasts.
One good piece of advice from author Friedman: Make sure you consult your tax advisor before moving forward, as the rules on deducting borrowing costs for home renovations have changed recently.
Is there a remodeling project in your future? You can check out Robyn’s complete article here.