O.K. you want to add a hot tub to your home to enjoy your evenings outside with your family and friends. You have cash sitting in your bank or you have a few credit cards that you can tap into to finance your home improvement.
What is the best option? Should you get a Home Equity Line of Credit? Making the right decision is based on knowing various pros and cons of different ways to finance your home improvement project and your current situation. Even if you have cash sitting in the bank, it may not always be the best option.
If you have cash at hand, it should be earning at least 5% in a savings account. If you are not earning 5% from your bank, dump them and go to a bank that will give you at least 5% on your money. Search the Internet and you will be able to find a few online savings accounts, offered by well known banks like Citibank, Emigrant bank or HSBC that will give you a 5% return on your deposit.
If your credit is good and the project is small, search for a credit card that will give you 0% interest rate for a year. Apply online and get approved instantly. Within a couple of weeks, you will get your card and you will be able to use it for your home improvement project. When you get a loan on 0% interest rate, make sure that you do not miss a payment. To avoid missing a payment, use online payments offered by many banks for free or the online payment option of the credit card company.
If your home improvement project is a large one and you want to do it in stages, HELOC, or Home Equity Line of Credit, is a good option. Search the Internet to get the best rate. Find a bank that not only offers the best rate but also waives the finance charges. When you take a HELOC loan, you are essentially putting your home as collateral and the interest you pay may be tax deducible.
Refinancing your home is a good choice if you have a large equity in your home or you want to reduce your existing mortgage rate. Also, if your home improvement project will add substantial equity to you home, refinancing is an attractive option. You will also get tax benefits on the interest you pay.
Obtaining a second mortgage to finance your home improvement project makes sense if you get a low fixed interest rate and the interest rate on your first mortgage is even lower than the second mortgage. A second mortgage involves less paper works than a full refinancing.
Don’t make a decision on haste. Weigh the pros and cons of various methods discussed above and your current situation. Find the best way to finance your home improvement project using other people’s money and without hitting your pocket book hard.