Are you looking to modernize your kitchen, add a new room, upgrade your outdoor space, or address necessary repairs due to damage from Mother Nature? A home renovation loan can be a strategic way to fund your remodeling projects and increase the value of your property. Here are a few loan options to consider to fulfill your needs.
Your Options for a Home Renovation Loan
Types of Home Renovation Loans
There are several types of home renovation loans to consider, including:
Home Equity Line of Credit (HELOC)
A HELOC is a line of credit. You qualify for a certain amount of funds based on the value of your home, as well as other factors. It works like a credit card. You use it when you need it, pay the balance as you go, and can continue withdrawing funds as needed.
The time you can use this line of credit, usually between five and ten years, is called the “draw period.” You generally only have to pay interest monthly on the money you’ve used during the draw period, but you can make extra payments toward the principal if you want to. When you pay off some of the principal, the money goes back to your line of credit, giving you more money to use. Most HELOCs have a variable interest rate, meaning your monthly payment could change as the rate goes up or down.
After the draw period is over, you can no longer borrow the money. Instead, you enter a repayment period where you start paying back the balance owed for 10 to 20 years until the balance is paid in full.
Home Equity Loan
Sometimes called a second mortgage, a home equity loan allows you to borrow a lump sum against the equity in your home. These loans have fixed interest rates and monthly payments, with five to 20-year terms. With this type of loan, you’ll begin payments immediately, and your monthly payment doesn’t change. It’s important to note that a Home Equity Loan adds a second monthly payment to your budget, independent from your original mortgage.
Greater Nevada Mortgage does not offer home equity loans at this time.
Home Renovation Loan
This loan option is particular to the need (hence the name) and is similar to a home equity loan in that you will add a second fixed monthly payment to your budget. The difference is that the funds can only go toward an approved home renovation project. This option can be limiting if you don’t have a clearly defined renovation plan, want the flexibility to make any changes to your renovation at any point during the process, or your preferred contractor cannot get approved to handle the renovation by the lending institution.
Greater Nevada Mortgage does not offer home renovation loans at this time.
Choosing the Right Loan to Fix Your Home
While these three types of loans for home renovations have elements in common, there are several significant differences.
- A HELOC is a revolving line of credit, whereas a home equity loan or home renovation loan is a fixed loan amount, rate, and payment where you receive your entire balance at the time of funding.
- With a HELOC, you only pay interest on the money you’ve drawn. As you repay the balance, the money is available to you again if you need it during the draw period.
- A HELOC typically has a variable rate, whereas a home equity loan or home renovation loan has a fixed rate. As you repay your HELOC, your interest rate will continue to fluctuate with the market.
The right choice for you will be dependent on your renovation goals. If you know exactly what you need the funds for and don’t need flexibility, a home equity loan or home renovation loan could be right for you. On the other hand, if you’re looking for a more flexible way to borrow money, a HELOC is the better option.
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