Home Renovations are pricy. From replacing a roof or plumbing to cosmetic renovations and upgrades, the costs add up fast. If you’re considering a home renovation loan to cover costs, chances are you’re considering your other options, too. We went ahead and did your research for you.
From credit cards to home renovation loans, let’s look at some of the ways you can cover the cost of your home repairs and renovations:
With Annual Percentage Rates averaging in the teens and twenties, credit cards are a readily available option for many – but they come at a cost. Even with a promotional 0% APR, it’s important to consider the full picture. Let’s say you miss a payment – how does that impact your interest rate? What other fees are associated with a large charge? Do you even have enough credit available on your card to cover the cost of your renovation? How will running a high balance impact your credit score? (Tip: High credit utilization typically negatively impacts your overall credit score.) The easy option isn’t always the best option, so be sure to think through the implications of a major charge before you pull out your card.
Home Equity Lines of Credit (HELOC)
With a HELOC, you borrow against your equity – which is your home’s value minus the amount you owe on the mortgage. Essentially, a HELOC functions as a second mortgage providing an open line of credit that you can borrow against and pay back – a bit like a credit card. You’ll need to have at least 15 to 20 percent equity in your home to qualify for a HELOC. It’s also important to realize that when you take out a HELOC, you’re putting your home up as collateral. This means you’re at risk of having your house foreclosed on if you miss payments. HELOCs also often have variable interest rates, which means your payments can fluctuate based on the market, so you’ll need to factor that into your budgeting.
Home Equity Loans
Home equity loans are more of a traditional loan model. Unlike a HELOC, a home equity loan provides a lump sum of money with a fixed payment, interest rate and repayment term. With a home equity loan, you can borrow up to 85% of your home’s value minus the amount owed on your mortgage. It’s important to note that both Home Equity Loans and HELOCs often have various fees associated with them, including application fees, appraisal fees, annual fees, points, title search and title insurance fees, mortgage preparation fees, filing fees and early repayment fees. These quickly add up and can amount to thousands of dollars in closing costs.
Often referred to as a “refi,” a cash-out refinance closes out your existing mortgage and opens a new, larger loan at a new interest rate. You benefit by receiving cash amounting to the difference in amounts between your old and new loans. Because refis are impacted by market rates, it’s important to understand how your monthly payment will be impacted if your new loan comes in at a higher interest rate than your original loan.
Home Renovation Loans (and Personal Loans)
Home renovation loans are just personal loans – like those offered by World – marketed under a different name. When it comes to a home renovation loan, personal loans are a great option. With World, you can get approval and funding in about an hour. Our home renovation loans also lock you in at a fixed rate with set payment terms, so you never have to worry about your payment going up. When you close on your loan, you’ll know exactly how much your payment will be and when it is due. Another benefit of personal loans is that you won’t be hit with all the fees associated with Home Equity Loans and HELOCs, and because you don’t put your home up as collateral, you’ll never run the risk of foreclosure. Here’s what you need to know before applying for a personal loan.
When it comes to renovating, don’t let cost concerns stand in your way. You’ve got financial options. When you’re ready to renovate, a home renovation loan with its fixed rates and set payment plan might be right for you. We can’t wait to see what you do with the place.