It is very important that all homeowners plan out their financing properly before they decide to renovate their house.
Home renovations can be really costly and it is always a good practice to keep in mind all the financing options that are available.
Getting a home renovation isn’t impossible at all if you don’t have the necessary funding required.
There are a few ways you can do it and one of them is your home equity for remodeling.
So get your mortgage calculator ready as we guide you through the options to get financing for your home improvements.
What exactly is equity release?
Equity release is a method that helps in unlocking the value of a property to receive a lump sum of money or even in smaller amounts.
Equity release can be taken advantage of without even having to pay off all your mortgage which makes it very ideal for a home improvement financing option.
Equity release is considered to be a smart method for home renovations as it has very low interest rates.
The money that is used to pay off interest for home equity loans or HELOCs is said to be tax-deductible only if the funds are used to improve the living quality of the house.
Home Equity Loan for remodeling:
Home equity loans have very low interest rates making them ideal for the home remodeling finance option.
Home equity loans were designed to help property owners to improve the quality of living therefore they do not charge a lot when you proceed to pay back the loan.
For this loan, the home is used as collateral. Getting a home equity loan to renovate your house is always a great choice, as it allows you to have a good return on your investment as well.
When you renovate your house you are either increasing the value of the property or improving the condition of it for your family.
In the future when you plan on selling the property, a home renovation will certainly help you to sell it off faster and at a better price.
Some cons of getting a home equity loan are:
With your being collateral it increases the risk of opting for this option as you might lose your home if you are unable to pay back the loan.
Other than that in some cases, property values decline as well due to market corrections, this might cause your bank to recall the loan.
If the balance you need to pay back to the bank somehow exceeds the total value of your property, the bank would call you in and force you to pay all the remaining balance altogether.
You receive a lot of money from Home equity loans and in some situations, this money might be more than you need.
However, if you plan on getting a big renovation project done or have a few other places where you want to use the money then Home equity loans might just be ideal for you.
Lifetime Mortgages on your home:
When people release the equity of their home they are in turn taking a lifetime mortgage.
Lifetime mortgages are given to people who are aged 55 or older. In easy terms, you would be selling off your house but still be allowed to live there until you decide to move out or maybe die.
Lifetime mortgages do not require you to make payments while you are alive. The interest keeps getting added on and you would need to make payments in the future.
Homeowners can take the payments as a lump sum, a series of lump sums, or maybe as a monthly income.
The money you get from lifetime mortgages can be an ideal option for you to renovate your house and improve your living quality.
You can get your home back if in the future you are able to pay off the loan.
Mortgage rates vary from lender to lender, so it is always a good choice to do some research before choosing one.
Few things that you need to know before taking out a lifetime mortgage:
The minimum age to get a lifetime mortgage is 55 years old. Lifetime mortgages should give you a minimum of 60% money based on the total value of your property.
A larger amount is given based on the age of the individual who is taking the loan. Other than that, if you have past or present medical conditions then the amount you receive from this financing might be more as well.
The lender should allow you to stay in the property for all your life or until you choose to move out to long-term care if the need comes.
Some lifetime mortgage lenders allow you to repay the amount monthly based on your monthly income.
The options that we have laid down above are for two different situations. Home equity loans are perfect for you if you are younger and can pay back the loan in the long run.
In the other hand Lifetime mortgages are perfect for people who are about to retire but also need to renovate their homes.