How To Finance Your Renovations
By Jim Hirschman
Published 03/15/2007 | Real Estate
Renovating your home is one of the best ways to increase it's selling potential and the amount of profit that you can expect from the sale. Getting rid of tired old rooms and reworking them into funky and useful spaces can exponentially raise the value of a home and in today's real estate market, newly refinished rooms and renovations set properties apart from the bulk of the homes on the market. However, renovations can be a costly endeavor so what is the best way to pay for these changes? Well, if you can simply write a check then that will make things significantly less complicated. That being said, most people will need to seek some kind of bank funding to make their renovations a reality.
There are a few different types of home renovation financing that are available. These are options assuming that you don't simply put the renos on a credit card or outright pay for them. However, these options are a bit more suited to the task than a simple credit card and I will explain why. Credit cards usually work at a very high rate of interest, approximately 15-19% or higher (on average). Whereas the financing that is available thought the banks have much, much lower interest rates because the loan is secured against your equity.
Take the home owner's line of credit for instance. It is a loan that is determined by your home equity, that is, the amount of equity you have accumulated in your home. This loan operates much like a credit card, but without the plastic. The only limit you have on the loan is your equity amount. These type of loans are great for renovations as there is breathing room if unexpected costs pop up (and they always do).
The other main type of funding is the equity loan, also known as a second mortgage. Like the line of credit the total amount is decided by your accumulated equity. As stated before both of these options are essentially customized for financing of home renovations or repair. Talk to your local financial institution to find out which will suit your needs better. Good luck with the renos!
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