Want to make some improvements to your home? Refinancing your cash out could be one of the best options. It is a low-interest way to get tax-free money. You can spend the money on remodeling your old kitchen, completing that basement you have been putting off for years, or whatever you choose. Please keep reading to learn how refinancing works and what you need to know when using it for renovations.
Financing To Renovate
If you decide to go this route, you will refinance your mortgage for more than you originally owed.
You will also receive the difference in cash. The more equity you have, the more money you can turn into cash.
If, for example, you bought a house for $160,000, but it is now worth $200,000. After living in that house for several years, you paid the mortgage down to $135,000. To calculate your net worth, simply subtract your mortgage balance from the value of your home.
This means that you are left with equity of $65,000. However, you cannot withdraw all of this as cash. Usually, you will need to leave some money for refinancing.
Benefits Of Renovation Refinancing
Here are a few reasons to consider taking advantage of refinancing to renovate your home.
Low-Interest Rates
As mortgage rates have been falling, the number of mortgage refinances has surged. In the second quarter of 2020, Americans took out over $2.3 million of refinancing loans.
Despite all this refinancing activity, Black Knight estimates that about 18 million homeowners still need refinancing. The renovation cost becomes part of the new mortgage with a renovation refinance.
Interest rates at record lows could mean borrowing more without significantly changing your monthly mortgage payments.
APR may not compare to a 0% entry-level credit card, but a renovation refinance will give you a higher credit limit. You can also pay much less interest than a personal loan for the same amount. Refinance home loan rates are generally low.
The Option To Upgrade Your Home
A clever renovation can increase the value of your property. Your renovations don’t need to be limited to gourmet kitchens or glamorous bathrooms.
According to a 2019 joint report by the NAR and the National Association of the Remodeling Industry, for example, replacing aging HVAC systems or upgrading your insulation could yield the best profit.
Before reselling your home, such an update could make your space more comfortable. It could also lower your utility bills.
Unlike cash-settled refinancing, a home improvement loan allows you to borrow the expected value of your home after the renovation is complete rather than its current value. This means that you can stretch your budget.
Similarly, even if you are new to home ownership, you could still benefit from a home improvement refinance.
Remodeling Could Be An Alternative To Buying
The spring home-buying season got off to a slow start thanks to the coronavirus pandemic. However, the national real estate market has been picking up since then.
In August, about 69 percent of homes sold were in the market. The National Association of Realtors reports that the inventory of unsold homes is down nearly 19 percent year-over-year. Sometimes, however, remodeling makes more sense than buying.
Maintaining One Payment
Refinancing your payments isn’t the only way to acquire money for home renovations. However, it is probably the easiest on your budget. Home equity loans, credit card debt, and personal loans add up to extra payments and interest.
You can keep your current mortgage payments by choosing a cash-out to refinance over a home equity loan or other types of loans.
A cash-out refinance is always a good idea if you hope to make essential home improvements. You can complete your desired renovations with tax-free, low-interest cash. You can enjoy benefits like low interest rates, the option to upgrade, and the ability to make one-time payments. Depending on the details of your property, remodeling could make more sense than buying.
