Can you use a mortgage to pay for home renovations?
There are a number of ways to pay for a home renovation with your mortgage especially if you have equity in your home. Using your equity allows you to access cash to fund a home improvement project.
How to use your current mortgage to pay for home renovations
Using your home’s equity is one way to utilize your current mortgage to pay for home renovations. A cash out refinance allows you to tap into your home’s equity to borrow cash for renovations. You refinance your existing mortgage and take out more than you owe and use that extra cash to pay for home improvements. One benefit of this is that when you make an improvement, your home will likely increase in value and provide you even more equity after the project is done. There are also FHA and VA cash out refinance options available if you have those government-backed loans as long as you establish your eligibility.
How to get a mortgage to pay for home renovations
There are secondary loans you can take out to pay for a home improvement including a home equity loan or home equity line of credit (HELOC). Both of these loans provide cash based on your home’s equity, but these don’t roll into your existing mortgage. They are separate loans that allow you to borrow for renovations or any other use. A home equity loan has a fixed rate and a HELOC has a variable rate. A HELOC gives you a line of credit that you can use when you need it. This can be helpful for a renovation as the money isn’t always used upfront and may need to be taken out later on. Learn more about the differences between a HELOC, cash out refinance and home equity loan.
Refinance and renovate your home
Looking to make a home renovation like a new kitchen or bath? The first step is to figure out how you’re going to pay for it. One good option is a cash out refinance, which allows you to take out a new loan for more than the amount owed on your existing mortgage and use the difference in cash to finance a home improvement. Here are some ways you can use a cash out refinance to help fund your home renovation.
- Lower your mortgage interest rate for home renovations
If the interest rate is lower than what you currently have on your mortgage, you can use a cash out refinance to refinance your mortgage to that lower rate and take out cash to pay for your home renovation. With a lower interest rate, you can save even more per month and apply that extra cash to any project you may have.
- Change your mortgage loan term for home renovations
Another way to help pay for a renovation is to change your loan term. With a cash out refinance, you can extend the time you have to pay for your loan and use that extra cash for a home renovation. For example, say you have 20 years left on your mortgage, you can refinance to a 30 year and get savings each month in addition to the cash you would take out of your home’s equity.
- Maintain one loan payment and make home renovations
One benefit of a cash out refinance to pay for a home renovation is that you only have to maintain one loan payment each month as your mortgage and renovation are rolled together. This makes it easier to manage your home renovation and the costs involved.
For more details on how a cash out refinance can pay for your new kitchen, bath or other home renovation, contact a licensed Freedom Mortgage home loan specialist today.