Using the value for the financing of renovations

By BankingMyWay.com

If you do not have the money to finance the renovation of a house, cashing in on your home equity is an option.

With home equity loans, you borrow against the equity in your home, which is accumulated through capital appreciation and deposit. Because your home is used as collateral for these loans, you can usually get a better interest rate than through unsecured credit, like credit cards.

There are two options when it comes to loans - payment of home equity loans (Helsinki) and equity lines of credit (HELOCs). Both are second mortgages, but they offer different ways to access and repay the money. With a payment of home loan, you receive a lump sum and then make monthly payments to pay the balance, as you would with a mortgage. Helsinki are available with fixed or variable interest rates, and conditions can be as short as 12 months and a long 30 years.

A HELOC is a type of revolving credit such as a credit card. With a HELOC, you have agreed to a limit and can attract the necessary funds. Interest rates are generally tied to prime rate and regularly fluctuate with market conditions. Therefore, your payment may vary considerably from month to month. HELOCs often allow you to make interest payments only. Generally, you must repay the full amount of the HELOC to a fixed period (10 to 20 years), however.

The use of a loan to finance the renovation work is appropriate because the money is reinvested in the property value. Improvements in your home should increase the value of the house and to compensate, at least in part, for the equity used.

For example, say your home is worth $ 200,000 and $ 100,000 you have in equity. You borrow $ 25,000 from your home equity to remodel your kitchen. The renovation of your home increase the value of $ 20,000 to $ 220,000. In essence, it will cost $ 5,000 to renovate your kitchen. In some cases, an investment in renovations can increase the value of the house more than the cost of the renovation. In this situation, you make money. In addition, interest payments on Helsinki and HELOCs are usually tax deductible.

Depending on how you do your renovation, a HEL or a HELOC May be a better option. For a single major renovations such as adding an addition, a deposit home loan is generally more convenient. The fixed rate for a HEL option allows you to budget for payments will not change over time. The structured repayment plan allows you to repay your debt earlier than the repayment options for flexible HELOC. However, you can expect to pay closing costs with HEL, which are generally less than closing costs mortgage primary.

If you plan to make a series of renovations in progress over time, a HELOC May be a better option. Because you can withdraw funds as needed, you're less likely to spend a lump sum loan on non-renewal. There are no closing costs for a HELOC, in May, but you must pay an annual fee. HELOC interest rates generally lower than interest rates HEL, but are often higher over time.