5 Ways to Pay for Home Improvements
MILWAUKEE, March 17, 2023 (Newswire.com) - Northwestern Mutual: Whether it's a fresh coat of paint or a complete kitchen remodel, home improvements can make a home feel fresh and new again. And, depending on the improvement, it could add value to the home. While some improvements can be inexpensive (a can of paint and a little sweat equity can go a long way), others are a substantial expense. The good news is that homeowners have a number of options to consider when it comes to paying for a remodel. Here are several to consider.
Tap into savings
Homeowners who have had time to save money may consider using some or all of the savings to pay for the improvement. Or, it's possible to use savings to cover a portion of the improvement while using other means to pay for the rest.
Take out a home equity loan or home equity line of credit
Homeowners might consider tapping into their equity by taking out a home equity loan or home equity line of credit (HELOC) to cover the cost of home improvements. Both options allow homeowners to borrow against their home equity, but the loans function somewhat differently. A HELOC gives owners access to a revolving line of credit, whereas a home equity loan allows homeowners to borrow a lump sum. The repayment terms differ as well. Homeowners should look into the specifics, including the interest rate and repayment period, before deciding if either option is right for them.
Some homeowners consider a cash-out refinance to help cover the costs associated with home improvements. Cash-out refinances can let homeowners refinance their mortgage while also allowing them to receive a portion of their home equity in cash. Shopping around with different lenders can help homeowners find the best rates and choose the terms that most closely fit their individual needs.
Take out a personal loan
Homeowners who don't want to use the equity in their home could consider a personal loan. Banks and credit unions offer unsecured home remodel or home repair loans, where homeowners aren't required to use their homes as collateral. Instead, interest rates and terms of qualification depend on factors like a homeowner's credit score, credit history, and income. However, because the loan is unsecured, it will likely have a higher interest rate (and therefore cost more) than a refinance or equity loan.
Utilize life insurance cash value
Homeowners who have a permanent life insurance policy, like whole life insurance, could consider using cash value in the policy as a way to access funds for a home improvement. A whole life insurance policy builds cash value over time that policyholders can borrow against for any reason. If the homeowner no longer needs the life insurance, they could also surrender a portion or all of their policy and take the cash value. It's worth noting that borrowing against the policy will reduce its death benefit. When you surrender a policy, you will no longer have a death benefit and it's possible you will owe tax on any gain in the policy.
The primary purpose of permanent life insurance is to provide a death benefit. Utilizing the cash value through policy loans, surrenders, or cash withdrawals will reduce the death benefit; and may necessitate greater outlay than anticipated and/or result in an unexpected taxable event.
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Source: Northwestern Mutual