If your home needs work or you want to make improvements, but you don’t have the necessary funds in a bank account, you have other financing options. You can tap into the equity in your home or take out a home improvement loan.
The equity in your home is the difference between the current value of your home and the amount you owe on your mortgage. If you have built up a significant capital, you can use it to fund a home improvement project. You won’t be able to use 100% of your capital, but you may be able to use a lot of it.
One way to do this is to get a home equity loan, which will give you a lump sum that you can use to pay for home improvements. You will have to pay fees and make monthly payments at a fixed interest rate. A home equity loan can be a good choice if you have a lot of equity and plan to make home improvements at the same time.
Another option is to take out a home equity line of credit. With a HELOC, you will not receive a lump sum. Instead, you’ll have access to a line of credit that you can use as needed, similar to how you use a credit card to make purchases. You will need to make monthly payments to repay the amount you use.
Unlike a home equity loan, a HELOC has a variable interest rate. This could make budgeting for these costs more difficult. You may be able to make interest-only payments initially, but your payments will increase significantly later. A HELOC can be a good choice if you plan to complete a series of household projects over time.
Home Improvement Loan
You can also take out a home improvement loan. This is an unsecured personal loan, which means you won’t have to use your home as collateral. This makes a personal loan less risky for you, but riskier for the lender.
If you take out a home improvement loan, the interest rate will likely be higher than it would be with a home equity loan or line of credit. Your creditworthiness will also influence the terms of your loan. You will have less time to pay off a home improvement loan than you would with a home equity loan or HELOC.
Which option suits you best?
Tapping into the equity in your home can be a convenient way to fund a project, but it comes with risks. If you can’t keep up with your home equity loan or HELOC payments, you could end up in foreclosure. Taking out a personal loan may be your best option if you don’t have a lot of capital or if you don’t want to put your home at risk.