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Remodeling: Pay Now or Later?

By: Allison Millar, Contributing Writer
In: Product review
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After agreeing on the fancy kitchen cabinets and granite countertops, you need to figure out the money part. The good news is that you have several options? You just need to figure out which financial option works best for you.

Using Savings for Remodeling

One way to finance a remodeling project is to use savings to pay the contractor’s bill. This is ideal if you have the extra cash because you won’t pay interest on the funds and your expense is finished when the contractor leaves. One downside is it reduces your savings for future cash flow needs.

Another popular option is a home equity loan or line of credit. Before deciding, ask yourself these financial and remodeling questions:

  • How close you are to retirement? You don’t want to deplete your savings right before retiring from your job.
  • What is your current savings rate versus the rate you’ll pay on a home equity loan or other financing method? Chances are you aren’t losing much interest if you pull it out of savings, but will you have enough left for emergencies?
  • Is this a one shot project or do you have ongoing remodeling needs? When financing a one shot project (granite countertops and kitchen cabinets), you’re better off taking out a home equity loan instead of a line of credit, says Bankrate.com. You know the payment amount and you won’t have an open line of credit to tempt you!

Remodeling Financing: It’s a Wrap

In a nutshell, if you have plenty of cash on hand, go ahead and use it. If you prefer to spread out the payments and leave yourself a cash buffer, think about whether you want a loan with a set amount or an open line of credit for several projects. Some people may qualify for FHA loan programs, according to the National Association of Home Builders.

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