Refinancing for Home Improvements

Let's say you want to make a few improvements to your home, a twenty-five-year-old structure that you'd like to bring into the modern era. You don't have the cash on hand that it would take to do the work. Should you refinance your mortgage loan to pay for the costs?

This, needless to say, is a common question. After a period of time, virtually everyone wants to refresh the look of their home. If you've recently bought a new home, the yearning will likely come later rather than sooner. But if yours is an older property, the home-improvement bug that hits you may actually be a mix of style-updating along with a few safety issues thrown in for good measure. Regardless of what type of improvements you want to make, refinancing could be your financial answer. However, there are a few things you'd do well to consider first before making that final decision:

Get several estimates. It's difficult to know how much money you'll need if you don't know what the cost will be. Home improvements that are really home repairs – such as wiring upgrades for an older structure or installing energy-efficient storm windows – can run you a sizeable sum. Go through the process of interviewing several contractors. Get an idea of what it will cost and then choose the most reasonable estimate. Adding up the expenses will help you determine if refinancing is a good option.

Evaluate the size of the job. This is related to the first point above. Home improvements that run in the neighborhood of $10,000 to $20,000 can usually be covered quite easily with refinancing. If your home has appreciated significantly because you live in a popular area, that amount itself might be enough to cover the costs, and you'll still have only one house payment to make each month. Depending on interest rates, larger jobs requiring more cash might be better served with a second mortgage (again, if you have the equity to handle the new loan).

Determine your future plans. How long will you continue to live in the home? The time frame is important because if you're planning to move in the next few years, you should only tackle home improvements that will definitely increase the value of your home. For instance, installing hardwood floors or butcher block countertops is fine, but painting may not necessarily be a good idea (the new owners may have other tastes). Besides, why spend all that money obtaining a second mortgage if you soon intend to sell the home? Refinancing can cover the smaller improvements and also leave some cash in your pocket.

Can you pay over time? Many home-improvement companies offer in-house financing for their services. You might be required to make a reasonable down payment, and then pay the rest over time. If your credit is strong, the financed amount could carry a low interest rate. You might even be able to swing a 'no-interest' deal for a certain amount of time. Depending on the terms, this could be a better option for your home improvement than refinancing.

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