How to pay for a bathroom remodel

You can enhance the beauty of your home and boost its resale value with a bathroom remodel. However, it’s important to choose the right type of financing for your needs. Here are several good options to choose from.

Mortgage refinancing
If you have a fair bit of equity built up in your home, you can refinance your first mortgage for a higher amount than you currently owe and cash out the difference to pay for the bathroom remodel. It may be possible to keep the same monthly mortgage payment if you extend the time period of the loan. Also, if the project involves making structural changes to your home, the lender may approve a loan based on the estimated value of your home once the bathroom remodel is completed.

Home equity loan
A home equity loan is a second mortgage that allows you to tap into your home’s equity. It usually has a higher interest rate than a first mortgage but lower closing costs. And, because the loan is secured against the value of your home, it usually provides a lower interest rate than an unsecured loan. With a home equity loan, you get all of the money that you are borrowing at once, which can be good if your bathroom remodel requires that you must pay a large lump sum to a contractor.

Home equity line of credit
A home equity line of credit (HELOC) is a revolving line of credit secured against the value of your home. It is a good option for a bathroom remodel if you need to pay for the project in stages or if you are planning to do the project yourself. You access the money as needed through a credit card or checkbook. This can make it very easy to pay different contractors or to make purchases at home improvement stores. Most HELOCs have an adjustable interest rate and may provide you with the option of paying only the interest.

Personal loan or line of credit
If you are planning a small, relatively simple bathroom remodel, you may want to consider a personal loan or line of credit. These loans typically have lower fees but, because they are not secured against your home, they tend to have higher interest rates. Also, whereas the other options are usually tax deductible, a personal loan or line of credit is not.

Once you have decided which type of financing works best for you, contact a lender to get pre-approved for a loan so you will know exactly how much you can afford to spend. And it’s wise to tell any contractor you hire that your budget is ten percent less than your actual loan amount. Bathroom remodels often have unexpected costs. This will help ensure you have enough money to cover them!


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