There are three loan options best suited for home improvements, depending on the size of the job and the amount you’ll need.
1. Home Equity Line-of-Credit
What could you do with the equity you have in your home? One option is a home equity line-of-credit (HELOC). A HELOC is an open-ended, variable-rate, revolving line-of-credit that offers multiple advances for a draw period of up to 10 years. Borrowing money against the equity you have built up in your home may be the right solution to finance the expense of making home improvements. Your interest may potentially be tax deductible (consult with your tax advisor for details).
2. Home Equity Loan
Another way to use the equity in your home to pay for improvements to your home is a home equity loan. A home equity loan is a closed-end loan that allows you to access your equity as a lump sum payout at a fixed rate for a fixed term. Put the money you have built up in your home to work for you. The interest may potentially be tax deductible (consult with your tax advisor for details).
3. Cash-Out Refinance
With this option, you actually refinance your first mortgage for more than you currently owe, then use the difference for your project(s). This option is especially beneficial in a low-rate environment since you could actually benefit from a lower rate than when you originally financed your home. In this scenario, your monthly mortgage payment could potentially stay fairly close to what you’re already used to paying even when taking the extra cash out for your home improvement project.