Home Equity Solutions For Your Next Big Project
Home renovations can make you fall in love with your house all over again. Unfortunately, coming up with the cash to give your home a little TLC is easier said than done.
The good news is that home improvement projects don’t have to drain your savings account or max out your credit cards.
Your equity can put these projects within reach. So, whether you need a new roof, new windows, a room addition, or a newly remodeled kitchen, here’s how to put your home’s equity to good use.
Get a Home Equity Loan
A home equity loan is a popular option for borrowing money, and it’s often cheaper than using a credit card or getting a high-rate personal loan.
This option allows you to tap your home’s equity and pull out cash for just about any purpose. Use cash to cover the cost of home improvement projects, or use it for other purposes like paying for college tuition, starting a business, debt consolidation, or paying off medical bills.
You’ll receive a lump sum of cash using your equity as collateral. These loans are attractive because they usually feature a fixed-rate and a fixed monthly payment. You’re allowed to borrow up to a percentage of your home’s equity, typically 80% to 85%. Home equity loans have terms that range from 5 to 30 years.
Be mindful of the fact that a home equity loan may involve closing costs, which are fees a borrower pays to get a loan.
Because a home equity loan is second to your first mortgage, these loans can have higher interest rates. However, the interest rate on a home equity loan is often less than the interest rate on a credit card.
Apply for a Home Equity Line of Credit
A home equity line of credit also uses your home’s equity as collateral. But instead of getting a lump sum of cash, you receive a line of credit that you can draw from on an as-needed basis.
There’s an initial draw period of up to 10 years, and then a repayment period of up to 20 years. Home equity lines of credit are revolving accounts with variable interest rates. Therefore, your minimum monthly payment will vary based on your interest rate and how much you withdraw from the credit line.
Ask About a Cash-Out Refinance
A cash-out refinances and home renovation loans represent additional options if you’re looking to get your hands on money for home renovations.
Refinancing your home is worth consideration if you’re also interested in changing the terms of your current mortgage loan. Maybe you have a higher mortgage rate and you want to see if you can qualify for a lower rate. Or perhaps you have an adjustable-rate mortgage and you want to switch to a fixed-rate mortgage.
Cash-out and home renovation refinances create a new mortgage to replace your old mortgage, and they allow you to borrow up to a percentage of your home’s equity. With a cash-out mortgage, your loan terms will be based on the present value of your home, and you can use the cash that is disbursed to you at closing to pay for your home renovation projects. Home renovation mortgages, on the other hand, are used to directly fund your renovation projects. Your loan terms for a home renovation loan will typically be based on the lower of (1) the value of your home once your renovations are complete OR (2) the present value of your home plus the cost of your renovations.
Since refinancing creates a new mortgage loan, you’re also responsible for paying closing costs on the new loan. Closing costs can range from 2% to 5% of the mortgage balance.
Home improvements not only transform your living space, some updates and renovations will also increase your home’s value, helping you build equity faster. Let Cherry Creek Mortgage make your renovation dreams come true. Give us a call and one of our helpful loan experts can explain various home equity solutions, and help you decide which one is right for your next project.