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Funding Your Home Renovation


The Average Home in the US is Down 25% Since 1975??

February 04, 2024

Although it's settled from its peak of 7.79% last October, with the average interest rate for a 30-year mortgage currently at 6.69%, according to Freddie Mac, some Americans have understandably been holding off on purchasing a new home. This is a reality for many, as relatively low inventory coupled with higher rates means less affordable monthly payments.

Just because we're staying in our houses longer, though, doesn't mean we've lost the impulse to change things up and rejuvenate our surroundings from time to time. Whether a fresh coat of paint, a new kitchen, or an addition, updates to our existing homes can make them feel fresh without having to pick up and move entirely.

If you're planning on sticking around for a few more years or if you want to make your current house your dream home, here are a few ways to pay for your home improvement project without completely breaking the bank.

Using your house itself…

If you've been there for a while, have paid down enough of your mortgage and seen enough appreciation, you may have enough equity in your home to pay for the improvements. Why not use the value of your home to increase its future value? There a few primary ways to accomplish this:

  • Home Equity Line of Credit (HELOC)

Typically allowing you to borrow up to 85% of your equity, HELOCs are lines of credit you can draw from as needed. Like a credit card, you only accrue interest on amounts you actually draw against your available credit. Interest is calculated based on the Prime Rate set by the Federal reserve (currently 8.50%), plus a margin. Unlike credit cards, this interest rate is significantly lower than the average APR of 27.94%. You usually have 10 years to spend money needed on a HELOC and 20 years after that to repay it in full. It's a great option given the flexibility and ability to control how much interest you end up owing if you pay back the debt expeditiously.

  • Home Equity Loan

Although it sounds and operates similarly to a HELOC, a home equity loan lets you receive the funds in a lump sum up front, usually needing to be repaid within 15 years. Still allows you to tap into your home equity, but means that you immediately start accruing interest on the full amount.

  • Cash-Out Refinance

A cash-out refinance essentially replaces your existing mortgage or (if your home is already paid off) establishes a new one in the amount you need relative to your equity. If you qualify, you get the difference between what you owe and what you need as an immediate infusion of cash to your bank account, then start paying interest on the total amount of the new loan.

Going it on your own…

If you don't have enough equity to tap into, there are other paths to explore:

  • Cash

If you're fortunate to have saved enough cash, you can obviously use your own resources to pay for a renovation. It's always wise to set aside some funds each month in a separate savings account to cover known and unknown expenses, like property taxes, a new HVAC system, or a new roof. It'll make sense to use cash as opposed to debt to finance a renovation if the interest you're getting on your cash reserves is less than what you'd have to pay in interest expense on the debt.

  • Personal Loans

Personal loans boast less stringent underwriting than home equity and mortgage loans. They usually charge higher interest rates, although lower than most credit cards. The other downside is that you typically don't qualify for as large an amount, so this may be a better option for smaller projects. As with any loan, the better your credit score, the lower your rate. You'll usually see repayment terms anywhere from 2-7 years.

  • Credit Cards

Although it wouldn't make sense to add significant debt to an existing credit card with a double-digit APR, many credit cards offer 0% intro APR on terms of 12-18 months. If you can pay off the debt within that time frame, this could be a good option to look into as well, especially considering that charges could earn you rewards points in the meantime.

  • Government Loans

Some homeowners may also qualify for up to $25,000 in Title 1 loans through the U.S. Department of Housing and Urban Development (HUD).

Remember if you're doing energy efficient upgrades to your home, that the 2022 Inflation Reduction Act allows homeowners to deduct 30% of these improvements on their federal tax returns, subject to certain annual limits, as home energy tax credits.

Happy renovating! Let us be as resource to you and your loved ones as you contemplate either a move or improvement to your existing home.

If you would like to receive more information on making smart money moves for your future, be sure to contact us today!


Gen Xers, Let’s Face It, We’re Now the Sandwich Generation

About the author

a man wearing a suit and tie smiling at the camera

Drew Pond

Wealth Plan Design Specialist

Drew Pond is an independent financial advisor and CFP® Practitioner at oXYGen Financial, specializing in portfolio construction, goals-based planning, life and long-term care insurances, and retirement plans, with 7 years' experience in the financial services industry. He lives in Midtown, Atlanta.

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. oXYGen Financial is not affiliated with Kestra IS or Kestra AS. Kestra IS and Kestra AS do not provide tax or legal advice. Investor Disclosures: https://bit.ly/KF-Disclosures

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation.

Background and qualification information is available at FINRA's BrokerCheck website.

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Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. oXYGen Financial is not affiliated with Kestra IS or Kestra AS. Kestra IS and Kestra AS do not provide tax or legal advice. https://Bit.ly/KF-Disclosures

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