April 12, 2024

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The best ways to finance large home improvements or repairs

The best ways to finance large home improvements or repairs
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Using your home equity can be a cost-effective way to finance large home improvements and repairs.

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Many homeowners consider upgrading or renovating their homes at some point in time. These projects can boost your home’s resale value, make your living space more enjoyable and improve your home’s overall functionality.

However, affording these projects can be challenging, as can paying for any large repairs that catch you by surprise. Whether you’re building an addition, replacing a roof or making your home more accessible in your senior years, you want to find the most affordable financing option to do so.

While many people think of credit cards and personal loans when it comes to funding major expenses, you have another source of funding at your disposal that’s better on many fronts: your home equity.

Explore your home equity options online now.

The best ways to finance large home improvement projects or repairs

There are a number of ways to use your home equity to pay for home renovations or repairs. The most popular are:

  • Home equity loans: A home equity loan provides you with a lump sum, which you begin repaying immediately, typically at a fixed interest rate.
  • Home equity lines of credit (HELOCs): A HELOC is a revolving line of credit you may access as needed during the draw period. After the draw period, you begin repaying the amount you borrowed, typically at a variable interest rate.
  • Cash-out refinancing: With cash-out refinancing, you take out a loan worth more than your outstanding mortgage balance. You use the funds to pay off your mortgage and receive the difference in cash. You then repay your new loan at either a variable or fixed interest rate.
  • Reverse mortgages: A reverse mortgage is available to homeowners age 62 or older. As with a cash-out refinance, you first use the funds to pay your remaining mortgage balance, then keep the remainder for yourself. You don’t have to repay the mortgage until you move, sell the home or pass away.

View today’s top home equity rates here.

Benefits of using your home equity for home projects

Why is your home equity an ideal way to pay for home additions, upgrades and repairs? Because it offers the following benefits:

Lower interest rates

One of the major advantages of using your home equity to finance your home improvements is that the interest rates are usually significantly lower than other forms of financing. This is because the loan is secured by your home, which means the lender is taking less risk. As a result, you can save a significant amount of money on interest over the course of repayment.

Higher loan amounts

Most home equity products allow you to borrow up to 85% of your home equity. This could give you hundreds of thousands of dollars to work with. Even the highest credit card and personal loan limits are rarely more than $100,000, and many are significantly lower.

Tax advantages

Home equity loans and HELOCs, in particular, offer tax perks not found with other forms of credit. If you use these funds to “buy, build, or substantially improve [your home] that secures the loan,” you may be able to deduct the interest, according to the IRS. That said, you should consult with a tax professional to make sure your home project or repairs qualify.

Find out how much you could borrow with a home equity loan here.

Flexible terms

Whatever your financial situation and goals, there’s likely a home equity product that will work for you.

Home equity loans are good for large one-time expenses (like a roof repair you have an estimate for), while HELOCs are ideal for ongoing expenses (like tackling several projects in a row). Cash-out refinancing can help you get a better mortgage rate or extend your term to make repayment easier. And reverse mortgages are well-suited to seniors who want to eliminate their mortgage payments and free up some room in their budgets.

The bottom line

Tapping into your home equity can be a cost-effective and easy way to finance large home improvements and repairs.

In addition to low interest rates, products like home equity loans, HELOCs, cash-out refinances and reverse mortgages offer higher borrowing limits, a number of repayment options and potential tax benefits. For many homeowners, this makes them a clear winner above credit cards and personal loans.