Considerations before Taking a Loan for Remodel

By administrator On February 6th, 2009

When you remodel, you pay for it. Whether you pay for it intelligently or end up paying in a not very well thought out manner the fact of the matter is that your remodel is going to cost you. It is up to you to be aware of the payment scenarios best suited to your financial condition.

As a generalization, the clever ways of paying for home remodeling won’t have you paying too much interest, you won’t be disturbing your nest egg and you will avail tax deductions wherever possible.

The process of arriving at the best ways to pay for your dream remodel begins with knowing the scope of the remodel, the amount of money required, and your financial condition. You can get an idea of the costs involved by obtaining bids from contractors. Add around 20% on top of it to factor for overruns in costs.

Once you know the costs, you are in a position to decide whether you can afford it or not. If you’re looking to take a loan then check out the monthly repayment amounts and the collateral you are being asked to put up. If it is your equity in your home that you are going to place as collateral then you’d better be very sure that you can indeed repay the loan. If you feel the home remodel is not essential at that point in time, you need not really go for it. Keep in mind your existing financial obligations such as any other loans, credit card debt, liquidity for an emergency, cash flow for at least three months expenses, etc.

Weigh the remodel costs against the value they will add. Greater the remodel costs more sense it makes to hold on till you have cash in hand so that you don’t have to pay interest on it. When deciding upon a loan, you have to choose between a variable rate and a fixed-rate home loan. The way things are today, a variable rate will in all probability only go up. So maybe a fixed rate home loan is a better alternative.

There are basically three options that you have to use your equity for a loan. A refinancing option allows you to take a larger loan and repay your existing mortgage, it can be a good alternative if interest rates have dropped and you will be staying in the home long enough to recoup the costs. A home-equity loan will be given to you at a fixed interest rate that is usually one or two interest points higher than existing rates; it is ideal for conditions where you need a big amount at one time. A home equity line of credit is a nice option if you need funds frequently for ongoing repairs.

Leave a Reply

Current month ye@r day *