Just like the initial home purchase which involves a huge initial capital outlay, making improvements on your home also costs a fortune. It is estimated that on average it will cost you about USD 20,000 to renovate your kitchen and give it a complete make-over. On the other hand, your bathroom, though considered to be among the smallest rooms in a typical residential house, it is estimated that it can cost up to USD 9,000 to remodel. With these kinds of financial obligations coming your way when renovating your home, you need to be aware of the strategies you can use to raise the total amount of money you will need in order to give your house a proper remodeling.
- Save and pay cash
This is the most straight forward way to fund your home improvement project without having any other extra or hidden costs. You save up for a given period of time until you have enough cash to do the renovations then get the job done when you have enough cash saved up for it. The flip side of this is that it will take you a long period of time before you can raise the whole amount needed; which may result to higher costs since the longer you wait the more wear and tear eats into your house hence requiring more funds to do the renovations.
To shorten your saving span you can choose to invest your savings in high return investment channels in order to accelerate the growth of your savings and hit your target levels much faster. You can choose from different investment vehicles available such as investing directly in equities, trading derivatives, online trading of forex and other commodities among many others. The rule of thumb is that your chosen investment strategy should be able to grow your savings much faster than the rate of return offered by a fixed deposit account. In addition, you should have your risk exposure hedged against any potential loses. For online trading, you must ensure that you have familiarized yourself with the online trading platform in order to understand the trading dynamics and increase your chances of growing your returns exponentially as you trade more.
- Refinance your mortgage
A financially prudent home owner will opt to go for a refinancing of their existing mortgage loan if the new loan will offer lower interest rates compared to the original mortgage. This has the dual benefit of lowering your monthly repayments as well as helping you access the funding you need within a very short period of time.
- Get a home equity line of credit
Unlike the refinancing option, the home equity line of credit (HELOC) does not pay off your original loan. However, it gives you access to a line of credit; which is a sizeable pool of cash usually up to about 80% of the value of your home after deducting the unpaid mortgage balance. Your credit worthiness and ability to pay are also put into perspective when determining how much money you qualify to get under the HELOC. The benefit just like in refinancing is that you get an instant access to the cash for your renovations immediately your application is approved.
- Take a second home loan
In some instances where your original home mortgage offers lower interest rates and you do not want to interfere with it, you would like to consider taking a second home loan. Your current home will be used as collateral in this case, but the second home loan will be subordinated to the original mortgage. This means that the original mortgage ranks higher in repayment than the second one. Again this option gives access to instant cash but the interest rate for the second loan will in most cases be higher due to the subordination effect.
- Apply for a personal loan
When you do not want to put your home as collateral for borrowing improvement funds, you can choose to get a personal loan and use it to finance the whole renovation exercise. This however comes with higher interest rates and shorter repayment periods. You will also need to have an excellent credit score in order to qualify for the loan. In addition, you do not enjoy the tax advantages like you would have; if you had used the refinancing and HELOC strategies. But just like all the other loan facilities, when your application is approved you get the money immediately to start your improvement process.
Your choice of the most preferred strategy in financing your home improvement project from the above 5 strategies will most likely depend on how soon you want the renovations done and the loan facilities available in your bank. In most cases though, combining savings and one of the loan facilities will help you to lower the amount you will borrow and keep you off the debt trap in the long-run.