Paying for Costly Home Repairs and Remodels

Sometimes your home is in need of a makeover, and sometimes it needs some major repairs. Either way, the price tag of having work done on your house is often enough to make most people pause. But home repairs and remodels don’t have to put serious strain on your wallet. Here are some options for paying for them:

Savings: If you’ve been saving for a rainy day, now might be a good time to dip into those funds. However, we don’t recommend draining your savings account or touching your retirement savings for unnecessary repairs. If you’re upgrading for cosmetic reasons only, figure out when you want to have the project completed and start putting away as much as possible to help offset the money coming out of your savings.
Refinance your mortgage with cash out: Does the thought of having two house payments every month freak you out? You can refinance your mortgage and pull cash out to complete your remodel. Keep in mind, you can only go up to 80 percent loan amount to your current home value for a refinance. Also, your interest rate on the loan will change to reflect current market rates, which could raise your payments more than you were expecting. While mortgage rates are typically lower than other loan options, you’ll most likely have to pay closing costs for the new loan.
Home equity loan and line of credit: If you have a great rate on your mortgage, or want to avoid extra fees, home equity loans offer an alternative for using your home’s equity to pay for costly remodels and repairs. Most home equity loans come with no closing costs, but you’ll want to keep an eye on prepayment penalties and introductory rates that will rise after the first year. Another benefit to home equity loans is that most lenders will allow you to go up to a 90 percent loan-to-value ratio. Home equity loans typically have a fixed interest rate that is higher than a mortgage. The funds are all disbursed at once to you, just like a mortgage with cash out, and you begin paying back principal and interest immediately. Home equity lines of credit, another type of home equity loan, have a variable interest rate, are a reusable credit limit (which means you can pull money from them and pay them back as often as you want during the draw period), and allow interest only payments during the draw period.

However you decide to pay for your home repairs, or home remodel, keep in mind your return on investment if you plan to sell down the road. This article will walk you through some of the better bets for getting your money back when you sell.

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