Don’t Make this Home Renovation Mistake

Blog posted On January 02, 2019

In the spirit of new beginnings, you may be considering a home remodel or renovation this year.  A home renovation is a great option to add resale value to your home or adapt the layout or design to fit your current lifestyle.  If you are planning a home renovation, don’t make this big mistake.  In 2017, 1 in 3 homeowners paid for some or all of their renovation project with a credit card.  With homeowners spending a median of $10,000 on renovation projects, this is a dangerous debt to take on.

Credit cards carry higher interest rates than other lines of credit because they are intended to be used for lower, short term expenses.  The annual Houzz & Home Study reported homeowners used credit cards to finance $141 billion worth of home improvement expenses, up 13% from 2016 to 2017.   Leading the trend were Millennials.  41% of Millennial survey respondents reported using credit cards to finance home renovation compared to 34% of homeowners aged 35 to 54.  Those who used credit cards did so because of the allure of points or cash-back or limited no interest promotions.  However, there are other options to finance your home renovation. 


Cash-Out Refinance

With a cash-out refinance, you can refinance your current mortgage to a larger balance and withdraw the difference.  Most lenders recommend building at least 20% equity in your home, so you have a cushion, before withdrawing any equity.  With a cash-out refinance you will be originating a new loan and with that comes closing costs and lender fees.  Make sure you budget for these costs before pursuing this option. 

Home Equity Line of Credit

A home equity line of credit or HELOC is essentially a second mortgage that uses your home as collateral.  A HELOC also has closing costs, but they are typically lower than that of a refinance, because the loan itself is smaller.  The All In One Loan is an innovative first-lien HELOC that functions like a checking account giving homeowners 24/7 access to home equity while applying all payments to loan principle first, continually lowering the balance and thus the cost of mortgage interest.  To find out how the All In One Loan works, visit our AIO Simulator

Renovation Loan

There are mortgages designed specifically for renovation projects.  Renovation financing combines the value of the mortgage with the cost of the renovation project into one loan, so you’ll only have to make one convenient monthly mortgage payment.  There are different types of renovation financing options to fit specific situations.  If you’d like to learn more about renovation loans, consult your local mortgage professional.


Whether you want to remodel your kitchens and bathrooms, open up more space in your home, or take on a larger project, your return on investment depends on how you pay for your project.  Before putting that renovation on a credit card, discuss your plans with a mortgage professional so you can thoroughly explore all of your options. 


Sources: CNBC