6 Ways to Finance Your Home Improvements - [BACK]
Spring cleaning may spring forth ideas of upgrading your living space. Whether it's your kitchen, bathroom, bedroom, or other areas of your house, there are ways you can find the money needed to improve your home. Before starting out on a project, make sure you can really make it work for you financially. Do not upgrade your home on a whim. Carefully consider what you want done and how much you can afford to spend then weigh the pros and cons of each of the following options for financing your project.
- Personal Savings – If you have some money put away, consider what it would cost to seek financing versus how much interest you are earning on your savings. It may make more sense to leave your cash alone. However, if you are not earning sufficient interest on your savings, borrowing from your emergency fund savings account, paying cash may be the least expensive route.
- Refinance A Mortgage – For larger project, refinancing the mortgage on your home may be a good option. Because payments are spread out over a longer time period, sometimes up to 30 years, the repayments may be lower than any other loan and if you are need of more money for renovations, it may be easier to manage with this kind of financing. You will be paying back more interest for a longer period of time, depending on the amount of money you get. Be cautious however because during these times of dramatic drops in real estate values, you may end up owing more money than your home is worth. But improving the value of your home will also in the long run, increase the value. Take a look at NatWest for mortgages.
- Home Equity Loan – Home equity loans, also known as second mortgages, allow you to make a loan against the value of your home. The equity in your home becomes collateral for the bank. It will also put a lien against your house. There are considerations including the 80% loan to value ration, in which you may only be able to borrow a smaller amount than you need based on home much you still owe on the first mortgage. The interest rate is typically higher than a first mortgage and the fees and closing costs tend to be high as well. For homeowner loans, take a look at ASDA Finance, while you'll be able to work out what you can afford from Alliance and Leicester's loan calculator.
- Personal Loan – For those with excellent credit who may not be interested in or eligible for a home equity loan, applying for a personal loan may be the way to go. There will be a higher interest rate than a home equity loan and there are closing costs involved in securing the loan. Take a look at Beatthatquote.com for a table of the best rates on loans available in the UK.
- Construction Loan – For those who do not have enough equity in their home to get the project done, applying for a construction loan may be an option. Construction loans are based on what renovations you plan to complete and how much value those renovations will add to your home. You must provide the lender with a renovation plan and the loan will only last as long as the renovations on your home continue. The interest rates on a construction loan generally have higher interest rates because they are not usually backed by large amounts of equity. Interest rates on these loans are variable and can go up at any time, causing your repayments to do the same.
- Store Credit – Oftentimes, home improvement and hardware stores will offer in-store promotions for discounts on major purchases by using their store credit card. Financing your project on store credit can be a good option if you have the means to pay it back before the promotion expires (ie: 0% interest for a year). If you miss or are late with a payment however, you could end up owing more than you bargained for due to increased interest rates and other fees.
A good website is Remortgage Market, who has financial help, advice and other helpful sources on mortgages, secured loans and remortgages.
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