- HELOCs are an easy way to access equity in a home.
- Cash-out refinances are the most straightforward way to tap equity.
- A second mortgage is usually safe.
A Few Ways to Refinance and Fund Home Improvements
As summer begins to fade, many homeowners are thinking about doing some last-minute home improvements before winter arrives. Whether it is time for that new roof or just a new coat of paint, it is all going to cost you. It can be even more expensive if you want it done by a professional. One of the best ways to fund these types of projects is by refinancing your home loan or getting a HELOC or second mortgage on your home. These days, consumers have several available options.
- Home Equity Line of Credit (HELOC)
- These loans are some of the easiest ways to access the equity built up in your home. Many lenders provide faster processing for these lines of credit and you only pay for what you use, usually with low-rate, interest only payments. Unfortunately, this can lead to problems for some and since the interest rate is tabulated daily, economic factors could have you paying more than you wanted in interest every month.
- Cash-Out Refinance
- Usually the most straightforward approach to accessing the capital in your home. The type of payments you make will depend on the mortgage product you choose. Because this is a first mortgage, a refinance will usually give you the lowest interest rate while still allowing you to access your equity. Closing costs and a reset in your mortgage term are the only real drawbacks to this option.
- Second Mortgage
- Second mortgages offer a safe approach to pulling cash from your equity to fund home improvements. Unlike refinancing, you maintain the base interest rate on your loan and simply add another payment into your monthly finances. Having two mortgage payments, as well as having to begin paying off the loan immediately are the problems that some will find with second mortgages. Second mortgages are riskier for banks since the loans are in second position and usually have higher rates than first mortgages.
If you have questions about these mortgage options or how to fund your home improvements, send a question to Bill, the Bills.com resident expert.
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