Home Improvement
Making improvements to your home is one of the best investments you can make. Besides the lifestyle benefits, the improvements will add to the value and marketability of your home.
So how do you go about paying for these improvements? If you don’t have the cash and need to borrow the money, the most cost-effective way is to use a mortgage loan. The interest rate on a mortgage loan is consistently lower than other types of loans, and unlike other loans, the interest on a mortgage loan is almost always tax deductible. Plus, you have the option of a repaying a mortgage loan over a time frame of 5 – 30 years, which combined with the lower interest rate means lower monthly payments. And even if you do have the money to pay for the home improvements, a mortgage loan might make more financial sense than paying cash.
There are two basic types of home improvement loans. With the first type, you can borrow 100% of the equity in your property. For example, if your home is worth $125,000 and your current mortgage balance is $100,000, you could borrow up to $25,000. With this type of home improvement loan you have option of doing the improvements yourself or hiring a licensed contractor.
With the 2nd type of home improvement loan you can borrow 100% of your equity and 100% of the cost of the proposed improvements. This means you can obtain a home improvement loan even if you have little or no equity in your current property. For example, suppose your home is worth $125,000, your mortgage balance is $120,000, and the planned improvements would cost $25,000. In this example, you could obtain a home improvement loan for $30,000. In most cases a licensed contractor must complete the improvements for this type of home improvement loan.
Generally speaking there are very few limits on the improvements that can be financed with either type of home improvement loan. The improvements could be everything from an addition to the home, a deck, remodel the kitchen or a bath, new carpet, finish the basement, or just general repairs.
A home improvement loan can either be a 1st or 2nd mortgage. While most home improvement loan are 2ndst mortgage and obtain a new 1st mortgage. Because interest rates on first mortgages are always lower than the interest rates on second mortgages, this should always be the first option to investigate. mortgages, in some cases it might make more financial sense to refinance your current.