Home renovations are a great investment, but it is important to make educated decisions when it comes to financing them. Take the time to research your options and make sound decisions that protect your financial future.

Credit Card Versus Personal Line of Credit

A personal line of credit is the most popular option if you are planning a smaller home renovation or longer term renovation. The personal line of credit works much like a credit card. You fill out one application and an approved amount is available to you indefinitely to pay for your current or future renovations. You receive a statement each month and are only responsible for repaying money you borrow and any accrued interest on that money. While some might consider using a credit card instead of a personal line of credit, this option typically offers credit worthy borrowers a lower interest rate and immediate access to additional funds as you re-pay your balance.

If you are looking to budget a specific amount to repay each month, a personal installment loan might be the right choice for you. These are offered with both fixed and variable interest rates, and the terms vary from one to five years. The disadvantage of a personal loan is that you are only approved for a specific amount, and once you have paid the money back, you cannot borrow more without filling out another loan application. If you are only looking for funds for a one time renovation and want to have a good handle on exactly how much your payment will be each month, this option might be the best one for you.

Home Equity Loans

When homeowners need to borrow larger sums of money for bigger renovations, a secured line or credit or home equity loan is a popular choice. These loans provide borrowers with a line of credit that is secured by the equity in their home or another asset. In most cases, home equity loans offer the lowest interest rates, and this makes them some of the most economical loans to pay off. Borrowers should make sure they clearly understand the terms of a secured line of credit though which often include not being able to sell the home or refinance it until the loan is paid in full.

Covering Renovation Costs By Refinancing Your Home

Finally, sometimes the best route to securing renovation funds is to refinance your home. Refinancing will sometimes lower your interest rate, and it can give you immediate access to any equity you have accumulated since your original purchase. When considering this option, it is important to carefully consider the amount you finance because PMI will be assessed if you borrow more than 80-percent of the value of your home.

When considering your source of funds for a renovation, it is advisable that you speak with a financial professional even if your plans are to pay cash. Also make sure to borrow enough to cover any unexpected additions or changes that may arise as you work through your home renovation. Planning ahead allows for a smooth renovation process and a better financial future.