As we continue to see low housing inventory and higher interest rates for new home mortgages, many homeowners are opting to stay in their homes and deciding to live out their HGTV dreams by embarking on that much needed or just wanted home remodel or renovation. Often times, many clients wonder what their options are for funding a new finished basement, master bathroom, extra home addition, or private backyard of their dreams but are unaware of all of their options. Below are a few strategies to consider when outlining your finance options for your projects:
- Save and use cash/non-retirement investments
o Pro: No debt once the project is finished!
o Con: Can take longer to save and if assets are used, this may reduce liquidity of assets.
- Apply for a Home Equity Line of Credit (HELOC)
o Pro: Only pay interest when the HELOC has a balance.
o Con: Some HELOCs are variable which can be risk with interest rates rising.
- Do a cash out refinance
o Pro: Fixed rates are common and more advantageous than a HELOC.
o Con: Sometimes, lenders require that the primary mortgage is part of the full refinance.
- Explore a Security Based Line of Credit attached to a brokerage account (this is different than Margin)
o Pro: Money stays invested in the market, while having an option to choose either a fixed or variable interest loan term
o Con: In some cases, if the account value goes below a certain amount, the lender requires the balance to be "called" which in the most simple terms, adding more money to the brokerage account so that it suffices to keep the loan viable.