Home Equity Options Provide Financing for Remodeling

By Karen Lawson
LoanPage.com Columnist

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You've decided on a home improvement project, but how should you pay for it? Depending on the purpose of your home improvement project, its duration, and your future plans, you can choose between refinancing your mortgage, a home equity loan, or a home equity line of credit (HELOC). Home equity can provide a ready source of financing home improvement projects that can ultimately add to the value of your home.

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Refinancing, Home Equity Loan or HELOC?

Refinancing your mortgage to include the amount you need for home improvement can provide funds at lower mortgage rates. If you plan to sell your home within a couple of years, an adjustable rate mortgage (ARM) offering a low rate for the first couple of years may be a good choice.

One drawback of refinancing is the requirement for mortgage insurance if the new loan pushes your loan-to-value ratio over 80%. If you already have a great rate on your current mortgage, or if refinancing would require the addition of mortgage insurance to your payment, consider a second mortgage instead.

A home equity loan can provide funds and is repaid over a specific number of years. Home equity loans generally offer lower rates than home equity lines of credit. If you are planning major home renovation projects of long duration, a HELOC can provide "pay as you go" convenience. You can draw funds when needed, and use only what you need. HELOCs generally carry higher rates than home equity loans, but provide more flexibility. It's a good idea to shop around for home equity financing options. Mortgage lenders can provide information about a variety of loan products.

About the Author
Karen Lawson is a freelance writer with more than fifteen years of experience in mortgage banking. She holds an MA degree in English from the University of Nevada, Reno.

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