As a homeowner, you probably feel that your home is never fully finished. There will always be a project, large or small, that you want to accomplish to make your home more you. This can fluctuate with home décor and design trends as well as your personal stage of life. For example, the comfy sectional sofa you bought on sale during the young children phase of your life might not suit you as you transition into the empty-nester stage.
Paying for these changes, however, might not always be in direct proportion with your wishes. It is not uncommon to have a wish list a mile long that your finances simply cannot support in one fell swoop. Prioritize your wish list and then compare that order to the costs associated with checking items off the list. Once you determine the cost of your top projects, you can start to explore exactly how to fund them.
Take Out a HELOC
This acronym stands for a home equity line of credit. This is a loan in which the lender agrees to a specific amount of money within an agreed period, and the borrower uses the equity built up in their home as collateral for the loan itself. If you are trying to check large ticket projects off your list, then this funding option is great because you can cover major home renovations with this loan if you have a significant amount of equity built up. Typically, a home equity line of credit will also have a lower interest rate than other borrowed options so if you are seeking out a large sum of money, the lower the interest applied, the better.
Reassess Your Budget
If you are not on a specific timeline and want to try to pay for your home renovation projects with cash on hand, then consider rearranging your current household budget to support more freed-up funds each month that can be saved and applied to these projects down the road. Sometimes our reoccurring bills like cable, cell phones, and insurance are easy to just keep as status quo however, negotiating these consistent bill amounts can yield a great savings. You can do a simple online search and have access to examples of how people have saved on auto insurance as a means to have more cash on hand each month and apply those strategies to your other reoccurring bills as well.
If the current interest rates are lower than the existing rate on your mortgage, then doing a refinance can be a great way to fund a home renovation project. While this process is arguably more complex than a HELOC, the set payment and lower interest rate than you gain from a refinance can create significant long-term savings. As you consider what is the best way to pay for home renovations, it is important to compare options against each other in terms of both present-day and the future. This is essential because the impact of your choice is going to extend beyond the length of your project, so be wary of viewing your financial timeline and your renovation timeline through the same set of lenses.