Learn 6 Best Ways to Finance Your Home Remodeling Project
3. House equity credit line (HELOC)
Home equity lines of credit (HELOCs) are similar to home equity loans in that they both allow you to tap into the equity in your home, and you typically require at least 20% equity to qualify. HELOCs, on the other hand, work a little differently and can be more flexible.
Instead of providing a lump sum of cash, HELOCs use your home’s equity to provide revolving credit that you can use whenever you need it, much like a credit card. HELOCs normally do not have closing expenses like home equity loans, but they sometimes feature variable interest rates and a different payback schedule.
The loan is divided into two phases: the draw time and the payback term. The draw term is typically ten years, during which you can use your available credit as needed. You will normally make interest-only payments on any monies borrowed.
Then, during the payback period (which could last 15 to 20 years), you will be unable to withdraw funds, and your monthly payments will include both principal and interest. A HELOC may be an excellent option if you are undertaking a long-term or multi-phase home renovation.
This is because you have more freedom to use your line of credit when you need it, and you don’t have to pay interest on funds you don’t use. Remember that because a HELOC is a secured loan, it is backed by your property, and any missed payments can place your home in danger of foreclosure.
4. Personal loan
If you do not want to utilize your house’s equity as collateral, or if you do not have enough equity in your home, you may want to explore a personal loan for your home improvement project. Personal loans are often easy to find, as numerous banks, lenders, and credit unions, like Ally, provide them.
As a result, you can shop around to discover the greatest deal (and lowest fees). Personal loans are unsecured since they are not secured by your home or another asset. Your interest rate will be determined by your credit score and history; the higher your score, the greater your chances of obtaining a lower interest rate.
Yet, like with a mortgage or other significant loan, it’s a good idea to shop around for the best rates. A personal loan could be an excellent alternative for financing a modest to medium home repair project if you have a good credit score and prefer a speedy payout.
