How to Finance Your Next
Home Remodeling Project
By Zenon Olearczuk,
Informa Research Services
While the market for
existing home sales continues to stabilize, homeowners are faced with deciding whether
to sell their homes or upgrade instead. A recent study conducted by Harvard University's
Joint Center for Housing Studies, estimates that Americans spent
$155 billion on repairs and home improvements in 2006, a 2.8% increase from
2005. That number is projected to rise to $160 billion in 2007.
Should interest rates and home
appreciation values hold steady, many homeowners will continue to invest their
money in improvements to increase the resale value of their existing homes.
After all, it’s cheaper to remodel your home than it is to move.
How
to finance your remodel
For those looking to remodel, there are other
financing options available to the more traditional Home Equity Line of Credit
(HELOC).
While HELOC interest rates are generally lower than those of credit cards or personal
loans, there are instances when a credit card may make more sense (e.g., using
a zero-introductory rate or low-fixed APR to fund a small remodeling project.)
In most cases, the
interest on HELOCs are tax-deductible. Unlike a conventional loan which may be
fixed, HELOC rates are also variable which can rise or fall based on market
conditions. It’s always best to pay close attention to the most current rates
and choose the finance method which fits your needs.
Some other things
to consider when deciding which loan is right for you:
·
Prioritize your remodeling projects. Look at what comparable homes are selling
for in your area and what features they include. You may decide that the cost
to add an outdoor patio or an extra room is more than you can recoup once
you’re ready to move. Consider a minor improvement project (e.g., new kitchen
cabinets and a sink) instead of a major kitchen remodel – the costs of which
you can recover once your home is sold.
·
Create a budget you can afford. Should you get approved for an amount greater than what your remodeling
project calls for, use only what you need and avoid spending the difference on
unnecessary luxury items. Your goal should be to create value in your home and
not incur additional debt.
·
Shop for the best rates.
When shopping for a HELCO be aware of the following charges: closing
costs, commissions, check writing, appraisal, or maintenance fees. If using a credit
card, avoid low teaser rates which may suddenly escalate after a brief
introductory period.
Whichever loan you decide to choose, go with the one that offers you the
greatest degree of flexibility and the least amount of restrictions. Once your
home improvement project is complete, you’ll take comfort in knowing that the
pleasure you receive from your investment far outweighs the time you took to
research your options.
Zenon
Olearczuk is a staff writer at Informa Research
Services who writes about trends and investment opportunities in the financial
services market.
