Refinance for Home Improvement Projects
As the value of your home continues to go up, you may be thinking about making some home improvements. Thinking about it is fun. Paying for it is not fun. The question is, should you refinance for home improvement projects?
Should You Use Your Credit Cards?
The first thing that probably comes to mind when you think about paying for home improvement projects is using your credit cards. That’s an easy way to pay for something. But if you need to borrow more than just a few thousand dollars, using a credit card is probably the most expensive way to do it.
Interest rates on credit cards can be very high, sometimes well over 20% annually. Some credit cards offer 0% interest, but those offers are typically for a short period of time. When the promotional 0% offer period is over, the interest rate goes up dramatically, along with your payment.
Should You Refinance for Home Improvement Projects?
Another, much better way to pay for a home improvement project is to refinance your existing mortgage and take some of the equity you have built up in the house out as cash. This is known as a cash-out refinance. It’s one of the cheapest ways to pay for a home improvement project. The current mortgage underwriting guidelines allow you to take out as much as 80% of the value of the house when you get a conventional mortgage. As an example, if your house is worth $400,000, you could get a cash-out refinance for 80% of that amount, or $320,000. You will need to pay off your existing mortgage when you refinance, so subtract the amount you currently owe from the new mortgage amount. That’s how much you will have for your project, minus closing costs, which are reasonable.
Interest rates for cash-out refinances are very low. Usually, the rate is only 0.125% higher than the interest rate for a mortgage used to purchase a house.
In addition to the low interest rates, another advantage of a refinance for home improvement projects is you can spend the money any way you would like. There are no restrictions at all. You can spend some of the cash to pay off high interest rate credit cards or other debt, or even go on a vacation. Anything at all is fine.
Getting pre-approved for a cash-out refinance is quick and easy, and doesn’t cost you anything. Contact us today to get started.