Create Your Dream Home with a Home Renovation Loan
There are many ways to obtain the funds you need to make home improvements. Three of the most popular types of renovation loans are home equity lines of credit, second mortgages, and mortgage refinancing. Below, we’ll take a closer look at each of these home renovation loans as well as their advantages and disadvantages.
Home Equity Line of Credit
A HELOC is a type of revolving credit that allows you to use your accumulated equity as security against the loan. You can access money as you need it and pay it back periodically until the term ends. HELOCs typically carry low interest rates (some banks advertise rates as low as 3 percent), making this type of financing a more economical solution than other home renovation loans.
Second mortgage are another popular type of financing that work well as a home renovation loan. As with HELOCs, second mortgages use your home as collateral for securing financing. Since second mortgages are riskier for lenders, they typically carry higher interest rates than first mortgages.
Mortgage refinancing involves replacing your current mortgage with a new home loan carrying a lower interest rate. This allows you to tap into the equity you've accumulated in your property and obtain the cash you need to renovate.
Which Type of Home Renovation Loan is Right for You?
All home renovation loans have their advantages and disadvantages. The type of lending that is right for you will depend on several factors, including your monthly budget, your renovation plans, and your financial goals.
HELOCs provide you with a large sum of money that will likely cover all your home renovations and allows you to take advantage of very low interest rates. Keep in mind, however, that home renovation loans put your home at risk, as the property is being used as collateral for the loan.
As with HELOCs, second mortgages can put your home at risk, and since they carry higher interest rates than first mortgages, you'll need to consider your ability to make the monthly payments on the second mortgage. If you only require financing for a short period, however, a second mortgage can be an excellent option.
Mortgage refinancing can be advantageous if you've owned your home for many years. If you're only a few years into a mortgage and have little equity built up, however, this type of home renovation loan may not be the best option.
Still unsure which type of home renovation financing is best for your situation? We can help. Contact us today to discuss your renovation goals and determine which types of home renovation loans are right for you.