Finance Home Improvements Through Refinancing

It is possible to refinance your home loan for a higher amount than your outstanding loan and seize the benefits of equity by obtaining additional funds for financing your home improvement projects.
This is not a traditional system for financing home improvements but it serves its purpose exceptionally. And it can guarantee you all the funds you need at very reasonable rates and with a flexible repayment program. Moreover, compared to other sources of funds, especially unsecured ones, refinance home loans are inexpensive financial products.

Home Improvements

Making home improvement requires high amounts of cash. However, the costs of financing home improvement projects can really be too elevated. There are no particular sources of finance for home improvements other than some home equity loans and lines of credit. However, these same sources can be used for other purposes and given that they use a property with a mortgage as collateral, the interest rate charged is usually higher than that of the mortgage loan.

Whether you need money for fixing a roof, adding a bedroom, painting, tiling, making the kitchen new, etc., the need of finance is almost unavoidable and though it might sound strange, resorting to a refinance home loan might be the cheapest option compared to the rest of the financial products on the loan market.

Cash-Out Refinance Home Loans

Cash out refinance home loans let you obtain additional money from the equity you’ve built on your home. This can be done when your existing mortgage loan represents an amount of debt lower than the value of the property that is guaranteeing the loan. The remaining value still let’s you obtain extra money as it can guarantee additional funding.

For instance: if you have a property that is worth $120,000 and your current mortgage debt reaches up to $80,000, this implies that you’ve got $40,000 left of equity. Though you can’t expect to obtain 100% financing unless your credit is impeccable, you can still easily refinance your home loan and obtain a $100,000 loan which after repaying your current mortgage will leave your with $20,000 to finance your home improvement project.

Benefits and Drawbacks

There are however, both advantages and disadvantages when you decide to refinance a home loan. Depending on the loan terms, on market conditions and on your credit score and history, you might be able to obtain a lower interest rate than your current mortgage loan. If this is the case, you’d be saving thousands of dollars over the whole life of the loan. However, it is not always possible to get a lower interest rate.

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Financing Home Improvements with a Second or Third Mortgage

Financing home improvements with a second or third mortgage allows you to maintain or increase the value of your home. With home equity loans secured by your property’s value, mortgage rates are relatively low. In addition, tax laws also allow you to deduct second mortgage interest in some cases.

But before you sign for your new loan, make sure you are getting the right type of financing for your project. Also, take time to research lenders for low rates and fees.

Start With A Home Improvement Budget First

Before you look for financing for your home repairs or remodel projects, draw up a realistic budget with estimated cost overruns. This is the time to collect project quotes from at least three contractors. Or if you are planning to do the work yourself, price out materials and fees for rental equipment.

For projects less than $2000, take a look at a home equity line of credit. This type of financing usually has no application fees and low adjustable rates for the first couple of years. Lines of credit also give you flexibility in using your principal, so you only pay interest on what you borrow, when you borrow it.

If your projects are larger, a closed second or third mortgage will provide you with better rates over the long term. With a longer period to repay your loan, you are also likely to recoup the cost of closing fees with a low fixed rate.

Take Advantage Of Online Quotes

Once you have selected the type of financing you want, shop around rates and fees to determine the best deal. With online lenders, you can quickly investigate rates from their websites. You can even request custom quotes based on your credit score and financial assets.

When you allow financial companies to access your credit report, you have a 30 day grace period where repeated inquires don’t hurt your score. After that, your score will be temporarily lower. So only ask for quotes if you are serious about applying for financing.

Securing financing for your home improvement projects usually takes less than two weeks with most lending companies. With today’s online lenders, paying for your home’s renovations will be the easiest part of your project.