Home improvement loans are often what homeowners shop for when home repairs or remodeling projects are on the drawing board. That’s logical. And the loans that can be used to finance home improvements have skyrocketed in popularity. These days, the loans to remember are:
- Cash-out refinance loans
- Home equity loans (also called second mortgages)
- Home equity lines of credit (”HELOCs,” another form of second mortgage)
Equity can be tapped for home improvement loans 3 ways
1. Cash-out refinance loans. These are first mortgages that replace your existing mortgage and allow you to borrow a lump sum from your home’s available equity. If you qualify, a refinance may let you to improve the terms of your first mortgage; at the same time, you can get cash to pay for home improvements, or any other purpose. The cash is turned over to you when the loan closes. Interest rate tend to be lower than other types of credit, and are usually tax deductible. (Check with your tax advisor for details.)
2. Home equity loans. These are second mortgages that allow you to borrow a fixed sum from your home’s available equity, while leaving your first mortgage in place. The interest rate and payment are typically fixed, lower than most other loan options, and the interest expense is usually tax deductible. (Check with your tax advisor for details.)
3. Home equity lines of credit (HELOC). These second mortgages allow you to borrow against a line of credit, much like a credit card, while leaving your first mortgage intact. The money you borrow can be repaid and re-used during the draw period of the loan. This can be convenient for a multi-phased home improvement project. The interest rate and payments fluctuate, but are often lower than most other loan options, and the interest expense is usually tax deductible. (Check with your tax advisor for details.)
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