Financing your home remodeling project

It’s exciting to remodel your home. Plus, surveys indicate that updating your kitchen and/or bathroom can often pay-off handsomely at resale time. There are also many available choices for financing a home renovation. However, some of them can end up costing you far more over the long run than others. So consider your options carefully.

Financing through a contractor
Some contractors will offer to provide you with financing. Just make sure the arrangement they are offering is as good as you can get if you were to arrange independent financing. Shop around. Often you can get better terms and a better interest rate by going through your own lender. You also want to hire the person you think is going to do the best job for you. Your choice should be based upon the contractor’s experience and references -- not financing.

Financing through credit cards
Credit cards can be useful for purchasing small ticket items that you can afford to pay off on your monthly statement. But, while it may seem like an easy option to use credit cards to cover the cost of a home-remodeling project, they usually charge you a high rate of interest on any unpaid balance. It’s therefore not a good idea to use them to buy items you are going to need to pay off slowly over many months.

Financing through a home equity loan
A home equity loan can be an excellent way to finance your remodeling project. Because it’s secured against the value of your home, it usually provides a lower rate of interest than an unsecured loan and a much lower rate than you’d be charged on most credit cards. The interest on a home equity loan is also usually tax-deductible, up to a maximum of $100,000, depending on how much equity you have in your house. Consult a tax advisor to determine how much applies to your particular situation. And be careful when financing any home-remodeling project to never take on more debt than you can comfortably carry.

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