Should I Refinance for Home Improvement?
Have you been in your home for a few years now? Is it time for new floors, a new kitchen, a new bedroom (or all three)? If you’ve lived in your house for some time now and you’re thinking about taking on a remodeling project, what should you do—refinance for home improvement or go another route?
Refinance for Home Improvement: How Does it Work?
Refinancing is the process of trading in your original mortgage for a new one, which often allows you to save money with a lower interest rate and lower monthly payments. Those lower payments can allow you to save for that home improvement project you’re fiending for.
You also have the option of a “cash out” refinance. In addition to the lower monthly payments, you also get a sum of money from the home equity. This lump sum can help you pay home improvement costs upfront.
However, make sure to note that not all mortgage lenders view these two different financing options the same. With a “cash out” refinance, you can end up with a higher interest rate versus a typical refinance.
Good Idea or a Bust?
As with any home loan, refinancing may or may not be a good idea based on your situation. In some cases, the savings you’ll get from these low interest rates may be worth the cost of refinancing. But if you only have a few years left to pay off your mortgage, you might be better off going a different path.
Are There Other Options?
To refinance for home improvement is not always a good option. If you’re in this category, you have other options.
Reverse Mortgage
A reverse mortgage is a type of loan where a homeowner exchanges equity in their home for monthly payments. In short, this loan enables the lender to pay you from the equity in your home. To qualify, you must be at least 62 years old and possess a minimum of 50% equity in your home. Reverse mortgages are good options for those who can afford the upfront costs of opening a reverse mortgage and who plan to stay in their current house for a long time.
Home Equity
As an alternative, you might be able to tap into your home equity to pay for home improvement costs. A home equity loan is a fixed amount of money that you borrow from your home equity and repay over a set period of time.
You also have the option of opening up a home equity line of credit (HELOC), which is a line of credit you can use on your home improvement projects. Even better is that HELOC is interest-free for a period of time, often 10 years.
Fund Your Home Improvement the Right Way
Should you refinance for home improvement? Before deciding, carefully measure all aspects of your situation, including your finances and how long you plan to be in your home. Our mortgage lenders can help you consider your options and make the best choice. Call us at 855-853-1522 for more information.