Alternatives to a Home Improvement Loan
NEW YORK, March 1, 2023 (Newswire.com) - iQuanti: You're ready to undertake that big renovation you've been planning and are wondering the best way to pay for it. A home improvement loan might seem like the most obvious idea, but before you move forward, it might benefit you to explore a broader range of options. Cash reserves, home equity loans, home equity lines of credit, and life insurance loans can all be viable ways of funding your home improvement project, from a brand-new addition to a state-of-the-art kitchen to a finished basement and beyond—and some of these financing methods come with unexpected upsides. Let's review each in more detail.
Cash reserves
Perhaps you've considered tapping into your cash reserves or savings to fund your home improvement project—after all, you've been putting money away for a reason, and this seems as good of one as any. Cash reserves can be a quick and straightforward way to fund renovations without taking on the burden of a loan and additional interest, but dipping into them may cause some to experience stress or anxiety. If funding your home improvement project with cash reserves doesn't feel quite right for you, don't worry—there's likely an alternative that will better fit your needs.
Home equity loan
A home equity loan can help homeowners fund their improvement projects without exhausting their cash reserves. Home equity loans, commonly known as second mortgages, allow homeowners to borrow against their home equity and allocate the funds towards anything they like, including renovations or improvements. Homeowners receive the funds in a lump sum and must pay it back in monthly installments over a set period.
Home equity line of credit (HELOC)
Homeowners looking to fund their home improvement projects might also consider a home equity line of credit (HELOC). A HELOC is a flexible financing option secured by your home equity that can provide you with a revolving credit line to use for renovations, repairs, and other large or unexpected expenses. It functions like a credit card—homeowners can use money as needed up to a certain amount during the draw period while making minimal, typically interest-only payments. When the repayment period starts, they must pay the principal plus any interest.
Life insurance loan
A life insurance loan is another option eager home renovators might consider as an alternative to the standard home improvement loan. Permanent life insurance policies like whole life insurance or universal life insurance build up cash value over time, which homeowners can borrow against for whatever they need. Taking out a loan against a permanent life insurance policy can provide homeowners with flexible funds—the loan operates without a fixed payment schedule, though it does continue to accrue interest.
The primary purpose of permanent life insurance is to provide a death benefit. Using permanent life insurance accumulated value to supplement retirement income will reduce the death benefit and may affect other aspects of the policy.
Source: iQuanti, Inc