Home Renovation Financing Options
Choosing a Home Improvement Loan or a Home Equity Line of Credit
Aug 29, 2009
A home renovation project may increase the equity of a home, and for those that need home renovation financing, a number of options are available to homeowners. Decide which type of home renovation financing option is best by evaluating the advantages between home equity loans, a home equity line of credit and mortgage refinancing.
Home Equity Line of Credit for Home Renovations
What is a Home Equity Line of Credit? – Also known by its acronym, HELOC, a home equity line of credit is a revolving line of credit secured against the value of the home. Similar to a credit card, borrowers are extended the money as needed up to their approved credit limit with a variable interest rate.
Advantages of a Home Equity Line of Credit – The interest paid is typically deductible under most income tax laws which make it better than using credit cards to finance the renovation. Ideal for ongoing renovations, a HELOC allows borrowers to access their funds at any time with interest charged only on the amount used each month. Keep in mind, that the failure to pay may result in home foreclosure.
Home Equity Loans for Financing Renovations
What is a Home Equity Loan? – This home improvement loan is a type of second mortgage that can be used to finance a home renovation. It is a lump sum of money that is to be repaid at a fixed interest rate with regular monthly payments.
Advantages of Home Equity Loans – Home equity loans carry a lower interest rate than many other financing options. This option is best for a major home renovation such as home additions and adding square footage because the borrower gets a lump sum all at once. Be aware of using the advance of funds for something other than the home renovation.
Cash Back Mortgage Refinancing
What is Mortgage Refinancing? – Mortgage refinancing occurs when a borrower is seeking to save money by refinancing at a lower interest rate or for the option of cashing out equity for a home renovation.
Advantages of Mortgage Refinancing – Mortgage refinancing offers the lowest rates to borrow money for the purpose of a home renovation. As long as the borrower is refinancing their mortgage at the time when the mortgage comes up for renewal, then cashing out some of the equity is a low cost alternative for renovation financing.
When in the market for home renovation financing, carefully weigh the advantages of home equity loans, lines of credit and mortgage refinancing in order to save money in the long term. In addition, Canada offers renovation rebates and grants from the federal and provincial governments to help pay for renovation costs.
Mortgage Refinancing for a Home Renovation
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Need a Home Equity Line of Credit?
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