What’s the Best Way to Pay for Home Improvements?

Written By Mary Beth Eastman
Last updated July 23, 2019

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July 23, 2019

Simple. Thrifty. Living.

Ideally, you use cash to pay for home improvements. When you pay with cash, you never have to worry about interest rates. You may even get a discount from contractors that appreciate the ease of cash payments.

Home improvements, however, often cost thousands of dollars. Even something as important as replacing an old air conditioning unit can cost anywhere from $3,000 to $7,000.

These high costs mean that most people will need financing to pay for their home improvements. Consider the following options to limit your interest payments and keep your credit score healthy.

If your mortgage has an interest rate that’s higher than today’s average rate, then you should consider refinancing to get a lower rate and spend less on monthly payments. Doing so may give you the money you need to pay for home improvements.

You can also use a cash-out refinance to tap into your home’s equity. You can often borrow up to 80% of your home equity.

Only take a cash-out refinance offer if you know that you can repay the debt. When you use your home as collateral, you put it in jeopardy. You don’t want to lose your home after borrowing money to improve it.

Note, however, that you can usually get a low interest rate with this option because you use your home as collateral.

When you refinance a home, your new loan pays off the original mortgage. Depending on how much you owe, that can turn into a large debt that you don’t want.

A home equity line of credit lets you borrow against your home’s value without repaying the mortgage.

Since you use your home as collateral, you can sometimes avoid high interest rates by choosing a home equity line of credit. Repayment periods, however, can last up to 15 years.

If you don’t want to commit to a 15-year repayment, then you should avoid a home equity line of credit. Otherwise, it could work well for funding your home improvement project.

Personal loans usually charge higher interest rates than the above options, but you don’t have to use your home as collateral.

The repayment window for a personal loan usually lasts 5 to 7 years. Even though you pay higher interest, you can eliminate the debt sooner.

You will need good to excellent credit to get a personal loan. Without collateral, many lenders don’t want to loan money to people without excellent credit histories. It’s easy to start the process online and see if you qualify. We reviewed the best online loan sites to help you narrow your search.

Avoid using a credit card to pay for home improvements. Credit cards have extremely high interest rates that will increase the cost of your project – unless you qualify for a zero percent interest card and can pay it off at once.

Only use a credit card for an emergency that you need to pay for immediately. Otherwise, stick to refinancing, home equity lines of credit, and personal loans.

About the Author

Mary Beth Eastman

Mary Beth Eastman serves as the content manager for Simple. Thrifty. Living, where she is dedicated to helping readers use money and credit wisely. Mary Beth believes that access to the right financial information paired with a growth mindset are essential tools for getting out of debt and building wealth. Mary Beth has a degree in Journalism from Bowling Green State University and has focused her 20-year journalism career on putting readers front and center, carefully considering their concerns and presenting information that will help them in their everyday lives. She has won numerous statewide journalism awards. Her writing on personal finance as been featured on numerous websites in addition to Simple. Thrifty. Living, including Huffington Post and Lexington Law blog. Mary Beth resides in Pittsburgh, Pa., with her family and two rescue dogs.

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