If you are going to finance your home renovation by borrowing money from a lender, there are things you should do first before making concrete plans. First and foremost, you need to know how much money you can get from the lender. Ask him about the different options he can offer. Once you know how much the budget is for the renovation project, you will be able to discuss things with the contractor with certainty.
There are many ways to finance a renovation project. Here are a few:
1. Homeowner mortgage. An existing mortgage can be beneficial when you are planning to have a renovation project. You can refinance your current mortgage and borrow a maximum of 90% of the market value of your home. Mortgage rates are considerably lower than loan rates. This means, refinancing a mortgage will help you save a substantial amount of money especially if you are planning to have a major renovation.
2. Personal loan. What’s good about personal loans is that they have flexible payment terms. Repayment periods may be 1 to 5 years which means you can pay for the loan quicker than mortgage. When you get a personal loan to finance your renovation and you are able to pay it successfully, your credit rating will improve.
3. Home equity loan. You can easily turn your home equity into cash that can finance your home renovation. With this type of loan, you can borrow up to 80% of your home’s current value. The repayment period may be as long as 25 years which means your monthly, semi-monthly, bi-weekly, or weekly payments will not be hard on the pocket.
4. Secured line of credit. This type of loan has lower interest rate than personal loans. This is because you will be using your home as collateral for the amount you are going to borrow for your home renovation. It is an economical source of home renovation funds, but has the drawback of a mortgage where you face the possibility of foreclose if you are not able to pay the loan.
Expert’s advice to homeowners is to set aside some funds for unexpected expenses that your renovation project may need. This will eliminate the need to renegotiate with your lender in order to get more funds.
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