If your home isn’t meeting your needs well or is starting to look outdated, a home remodel can breathe new life into it. Yet the cost to remodel can be extensive. Where can you find the funds to cover this cost? One smart option is tapping the equity in your home. Here’s what you need to know about using this tool to fund your home renovations.
Benefits of Using Home Equity to Improve Your Home
First, let’s look at why home equity makes sense to fund home improvement. Traditionally, loans backed by the equity in a home or another asset have lower interest rates than those that are not. It is not uncommon to get home equity loan rates significantly less than unsecured loans and only slightly higher than a primary mortgage loan.
A second benefit of using home equity in this way is the benefit of investing in your home. Renovations make your home more livable and attractive while you are enjoying it. They also make it more appealing when you decide to sell it. Both are significant benefits worth considering.
Using Your Home Equity Wisely
If you wish to use your home’s equity to fund your home improvements, make sure you do so wisely. First, choose the right term for your home equity loan. You can get a second mortgage with a term that’s as long as 30 years, but you probably won’t stay in your home for three decades. Try to choose the shortest term you can afford because you want to start building your equity again.
Second, understand the terms of the loan. You want the lowest possible interest rate and closing costs. Many of these loans will allow you to roll the closing costs into the loan, so look for that option if it appeals to you.
Before pre-qualifying for your loan, do the legwork to find a contractor and get quotes for the remodel. Once you have the loan money in hand, you can’t ask for more, so you need a clear idea of how much you require before you begin.
Finally, do the math. Before getting a home equity loan, make sure you can afford it. Remember to account for potential future problems, like unexpected job loss or medical bills. If for some reason, you can’t pay your home equity loan on time in the future, the lender will have the right to foreclose on your home, so you want to make sure this isn’t a huge risk before taking out the loan.
A home equity loan can be a smart way to fund major renovations for your home. Use it wisely, but don’t be afraid to tap into the equity you have been building to fund your future home renovations.