Need More Room? Don’t Move - Improve

Courtesy of ARAcontent
Published: March 22, 2008

Gone are the days when potential buyers would fight over every listing that comes on the market, driving up prices in the process. Now homes may linger on the market for months, fetching far lower prices. Because buying a new home typically requires first selling your current home, many people who want to “move up” to a bigger or nicer home are choosing to stay in their current homes and upgrade them instead.

Home improvements offer many benefits: they make your home more comfortable and can also be a prudent investment. Popular projects include:  kitchen remodels, bathroom additions, deck additions, siding and window replacement - all improvements that, in addition to making a home more livable,  may actually increase the value of a home.

But where will people find the money to pay for their improvements? A popular option is to tap into the equity in the very house you’re planning to fix up. When it comes to funding home improvement projects, consumers with equity in their homes have multiple options.

Here is a quick guide to financing choices:

Home-equity loan: With a home-equity loan you take out one lump some of money based on the equity you already have in your home. The amount you borrow and the interest rate are fixed at the start of the loan. These loans typically last from five to 15 years.

Home-equity line of credit (HELOC): A home-equity line of credit functions as an open line of credit, only it is borrowed against your house like a second mortgage. The benefits of using a HELOC instead of a credit card are that the interest rate is almost always lower than that of a credit card and the interest is usually tax deductible.

Cash-out refinance: This allows you to refinance your mortgage for more than you currently owe, leaving cash on the table that you can put toward your home improvements. Unlike a home-equity line of credit or home-equity loan, a cash-out refinance does not require taking on the additional burden of a second loan.

Homeowners that don’t have a lot of equity in their homes, or don’t want to tap into that equity, may find that simply refinancing their homes can help offset home improvement costs.

Interest rates are near record lows. If you bought your home a few years ago you may well be able to refinance at a lower rate. That lower rate can yield substantial savings that can help pay off your home improvement bills.

There are benefits and drawbacks to any home loan so it’s a good idea to discuss your options with a trusted financial professional. Whether you go with a home-equity loan, a home-equity line of credit or a refinance, your interest payments will likely be tax deductible, and no matter which financing option you choose, upgrading your home can add value and comfort.

Courtesy of ARAcontent