Four Tips for Funding your Next Home Improvement Project: Finding the money to cover these costs may not be as difficult as you think.
If you’re a homeowner, you know how long your home improvement to-do list can be. The kicker? It just keeps growing. While finding the time to complete these projects is tough enough, you also have to factor in the cost. Before you put off the deck repairs or master bathroom upgrade for yet another day (or year), consider these options for funding your next project.
Save up the cash. This is the most financially responsible way to pay for home improvements. While you might have to wait longer to complete the project because you’re saving up the funds, you’ll be in much better shape financially when you don’t have to make future payments toward a loan that generates interest. Just don’t blow your entire savings and make sure you still have the recommended three to six months’ worth of living expenses saved up in an emergency fund for unexpected expenses.
Refinance your mortgage. This option can potentially free up extra cash each month with a lower mortgage payment. You could also look into cash-back refinancing. This allows you to take out more money, using your home as collateral, that you’ll receive once you close on the refinance. This works well if you have equity built up in your home and can cover the addition to your monthly mortgage. Many homeowners prefer this method because they don’t have to worry about making a separate payment elsewhere.
Open a home equity loan or line of credit. Home equity is calculated by taking the value of your home and subtracting the total amount you owe on all mortgages. With a home equity loan, you receive the money you’re borrowing in a lump sum payment. It usually has a fixed rate and is often best for large, one-time expenses like a new roof. Alternatively, a home equity line of credit operates more like a credit card in that you can draw money as needed from an available maximum amount. This is best for ongoing expenses that require spending flexibility.
Get a credit card. The benefit of using a credit card is that you can make purchases as needed while spreading the payment out over time. Look for a card with a low, fixed annual percentage rate (APR) or one with an introductory APR and plan to pay it off before the promotional period ends. Otherwise, you could be stuck with a hefty credit card balance that accrues interest. Also look for a card that offers cash back or reward points for your purchases that you can redeem later. If you go this route, try to use the credit card to pay for smaller things like materials rather than the entire home renovation so you don’t incur thousands in credit card debt.
Presented by Member One Federal Credit Union