Renovations and upgrades: to loan or not to loan?

Let’s just be honest. Taking a loan is perhaps one of the scariest things to be doing, especially if it’s going to be for a valuable asset like your house. Whether it’s for repairing a few things that your insurance doesn’t cover or whether it’s a decision made after paging through the thick, glossy magazine called Lifestyle, what is clear is that your house deserves a makeover. One which does not come for free.

Homeowners looking for ways to improve their house without emptying their pockets might be a little short on options to choose from. Or, at least that’s what we’re told.

Possibilities and loan options are dependent on every homeowner’s personal financial situation. This could mean taking a home equity loan, doing cash out refinancing or even a personal loan.

Home equity loan

A home equity loan is a second mortgage; a type of subordinate mortgage made while an original mortgage is still in effect. The loan is based on the variation between the homeowners equity and the residences’ current market value.

The home equity loans soared high on the charts after the Tax Reform Act of 1986, as this provided an alternate path for homeowners and consumers to somewhat evade one of its main rations. Today, an amount up to $100,000 can be taken as a loan and homeowners can circumvent paying any interest (provided that itemized deduction takes place).

In summarization, equity loans are an easy way to cash. Home equity loans are beneficial to both, borrowers (consumers) and lenders. Since home equity loans generally have a lower interest rate, as compared to credit cards, keeping borrowing costs low. Similarly, the loans are safe for lenders (banks) to make as your house is now used as collateral.

Cash-out Refinancing

If you’re a homeowner that’s lived in their home for a number of years, there may be some built up equity you could tap into.

A cash-out refinance is a new house loan for a greater sum of money. This allows homeowners to pay off any existing loans whilst getting to keep the remainder of the amount.

This kind of loan is different from the above mentioned traditional home equity loan, as this comes with a new set of terms and can allow the homeowners to lock on a lower interest rate. However, this option is not right for everyone out there looking for a loan, since this is dependent on the scale of the interest rate and how low or high it is.


Home Ownership Investment

Unlike most loans, this investment does not come in monthly installments. As an alternate route to the traditional path of most loans, a company invests alongside the homeowner’s residence, sharing the potential credentials in the homes’ value. Through the company Unison, and the Unison Homeowner Program you can tap into your household equity. Should you think to sell your residence at any given time in the next thirty years, the company gets a share of the home’s increase in value, if any.

Pursuing the discussion further, we comprehend that a loan by the end of the day is still a loan. Therefore taking one is a massive decision regarding you and your financial stability. Should you decide to take the loan for mere renovations, go for cash-out refinance.

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