Using the previous example, with a cash out refinance you would take out a loan for $85,000, use it to pay off the old mortgage of $50,000 and pocket the balance of $35,000 to invest into your kitchen. If you fail to pay the bank does have the right to foreclose on you to get their money back. The banks generally won’t let you max out your loan to equity ratio.ĭon’t forget that if you take out a secured loan against your home to remodel your kitchen, then your home is as risk. If your home is worth $100,000 and you owe $50,000 to the bank as a mortgage, then you’ll probably be able to borrow around $35,000 dollars. You’re also likely to pay some closing costs before you get the cash and you need to have enough equity in your home to qualify. You’re going to have to jump through more hoops while going through the application process. There are a few gotcha’s with these vehicles, however. The fact that you’re improving the house that you’re using as collateral is a factor in if you will qualify and what your rate and terms will be. If they ask during the application process what you want the money for, don’t be shy about telling them you’re using it to remodel your kitchen. The benefit is that they usually lend qualified applicants a higher amount at a lower fixed interest rate, with longer payoff terms, and tax-deductible interest. Options include a home equity line of credit (aka HELOC), cash out refinance, or a home equity loan (aka second mortgage). Secured Home Improvement Loansĭo you have equity and are planning on spending more than $30,000? This may be your best bet.
The Bad - Higher interest rates than with a secured loan and no tax benefit. You can get enough money to finance a substantial kitchen remodel without having to couch up cash for processing fees or closing costs. The Good - The application process is easy. Interest rates and terms on personal loans will vary widely at different banks, so don’t be shy about submitting a half dozen or more applications in a single day. Shop around at a few banks and make sure to check your credit union and the larger online banks. Since they’re unsecured the annual percentage rate ‘APR’ will likely be more than double than with a credit card, but the repayment period will be much longer, making the payments a lot easier to handle on a month to month basis. Generally you’ll be able to get more money than borrowing from a credit card and they are fairly easy to get. If you plan to spend more than $10,000 and up to $30,000 to remodel, consider getting an unsecured personal loan. Additionally, interest is not tax deductible. The Bad - You don’t have a lot of time to pay it back and if you go beyond the offer expiration date you could owe big. The Good - An easy to get and a low interest loan. Just be warned, if you go past the agreed upon repayment period you may end up owing a lot of interest and this option will not have been fiscally responsible. You really can’t beat that, as long as you pay it back according to the terms. That’s a perfect amount for a small kitchen refresh like new countertops, floors, and lighting. It’s not uncommon to qualify for $10,000 of unsecured credit for 18 months at 3.99%. They might be in the form of a new card or checks you can write against cards you already have. If you have good credit, you probably get low interest credit card offers in the mail all the time. As a result, loans under this umbrella are typically smaller, have higher interest rates, and must be repaid within a 10-year-or-less window. This type of financing doesn’t use your home for collateral, which means it puts the lender at a greater risk. If you’ve decided to get one, there are two basic ways to finance your project: unsecured and secured. Why wait until you’re ready to sell and never get to enjoy that new kitchen? Types of Loans Securing a loan to renovate your kitchen is literally going to make you happy, and you’ll feel that happiness every time you walk into the kitchen for years. It’s a shame they didn’t start this project sooner, which brings us to our second point. If this wasn’t the case, it’s doubtful people would bother to gut their old kitchen just before putting their house on the market. But dig a little deeper, and a few interesting perks start to show up.įrom a long-term standpoint, securing and wisely investing into your home will bump up your property value. On the surface, the benefits are obvious.
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