You have finally decided to undertake kitchen remodeling.
I’m sure, the reasons are many. It’s probably been a while since you got excited by the prospect of decorating it, and you have decided to do something about it. Or maybe the wall paint is scraping off. The appliances are out of vogue. The faucets are rusty. The flooring is dull and cracked. Well, you get the idea.
Whatever your reasons for a remodel, you will still need to plan it in advance. Generally speaking, most homeowners go overboard with their kitchen and end up investing in many luxe features…which is all fine and good as long as you can afford it.
The problem is, most of us don’t have the money lying around to create our dream kitchen. Even when we consider that a kitchen remodel is one of the most profitable home improvement projects you can undertake in terms of returns, it doesn’t magically solve money issues in the present.
Breathe. We get it!!
And we can assure you that there are still ways to turn your frown upside down. There are plenty of kitchen remodeling financing options to choose from based on your requirements. Choose wisely, though.
1. Using the Equity of Your Home
With this financing option, you use your home as collateral for securing a home equity loan or a home equity line of credit (HELOC). The con here is that if you fail to make the payments, you run the risk of losing your home. However, this financing option comes with a low-interest rate and is easy to procure.
Home Equity Loan (HEL)
Home Equity Loan (HEL) allows you to borrow the required sum using your home equity as collateral. You get the complete amount in advance where after you cannot draw more money, and the sum must be paid off in fully authorized payments.
HEL offers fixed interest rates where the interest paid could be tax-deductible.
Home Equity Line of Credit (HELOC)
Home Equity Line of Credit (HELOC) is probably the most lucrative financing option to finance a kitchen remodeling project.
HELOC is akin to a credit card that essentially uses your home as security. The credit limit depends upon a certain percentage of your home equity. Homeowners with a poor credit score are also eligible for this loan, but the line of credit will vary.
Instead of getting a lump sum like a home equity loan, HELOC gives you a line of credit that you can use over time. Moreover, tapping into the equity of your home allows you to move funds in and out of the credit line as needed. You only end up paying interest only on the amount you borrow.
However, you need to have a decent credit record to be eligible for this loan in addition to having substantial equity in your home. Almost all HELOC lenders ask for a combined loan-to-value (LTV) ratio of 70% or lower to qualify for a HELOC. LTV ratio can be defined as your current mortgage debt, divided by the appraised value of your home.
HELOC’s are considered a comfortable option by many as they provide credit that is stretched over a considerable period of time. A number of HELOC’s let you borrow against the credit line for 10 years. After the stipulated period is over, the HELOC is generally converted into a fixed loan and the outstanding balance is amortized over a period of 10 years.
2. Financing Kitchen Remodeling Directly through Contractor Financing
This is another option where kitchen remodeling contractors come up with individual financing packages. However, this route comes with its own snags. Here you do not have an array of different potential loans to compare their distinct rates and terms.
In case you consider going down this lane, make it a point to thoroughly scan the chosen contractor’s rates and terms and compare them with the rates of their peers in the industry.
3. Using Personal Loans
Securing personal loans is a great kitchen remodeling finance option; especially for those who do not have enough equity in their home to use. Personal loans are unsecured; which means that you do not need to use your home as collateral.
The loan procurement procedure is uncomplicated and once approved, the money reflects in your account immediately. Another point that goes in favor of personal loans is that they offer a long repayment option and many a time fixed interest rates.
Although as per the going trend, the lower your credit score, the higher the interest rates tend to be. If you are lucky, you may find lenders both offline and online that offer personal loans to people with a low credit score too.
4. Refinancing Your Personal Loan
Say you applied for a personal loan for refurbishing your kitchen. In the course of time, you realize that you are unable to pay off the monthly installments and are in a complete soup. At this crucial stage, in all probability, you will be looking to lower your monthly payments. This is where refinancing of personal loans comes in.
Refinancing of personal loan allows you to take a new personal loan with better rates and terms and use that to pay off your current loan. You can also look for a loan with a lower APR.
To find out the loan that suits you the best, you need to shop around and do your diligence. A number of lenders use online applications that you can use to get a quote and compare.
Whatever course you adopt, make sure that once you receive the money from the new loan, your old loan is well and properly closed off and paid in full. Hereafter you can start to make the payments to your new lender and enjoy the benefits of your new loan in full!