When we think of the rising interest rates, we mostly think about how it affects purchasing new homes - but it affects financing home projects too.
The current high interest rates can make financing home projects seem tricky - but it doesn’t have to be so complicated.
“Lifestyles have changed a lot over the last couple of years,” said Mischa Fisher, a chief economist and home expert at Angi. “Your home may not fit all your needs anymore. However, instead of moving and getting a new house, you might want to consider staying in place and remodeling. Staying in place and remodeling means you can hold on to your current mortgage and low interest rate on that mortgage instead of moving into a more expensive house at a higher mortgage rate, so that can really be a better deal right now.”
If you have the necessary funds, you can avoid additional interest payments from a remodel by paying in full. If you do need to finance your project, you can choose between using personal loans, home loans, credit cards and cash-out finances.
“Even with high interest rates, there are ways that you can take advantage of the current macro environment,” Fisher said. “First, make sure that you’re really shopping around for materials. Some of the price inflation we’ve seen over the past two years is really starting to come down over the last few months, so make sure you’re shopping around. The other thing is to make sure you’re really being cognizant of the different tradeoffs of the various loan products you’re getting, and avoid products with high interest rates to potentially avoid those high payments as interest rates are expected to rise even further.”
Try to plan ahead as much as possible. This will ensure you get a great pro and will give you time to come up with a budget and a timeline that works for you.
“Home equity is the amount of value that you have in your home after you subtract the amount that you still owe on your mortgage,” Fisher said. “Right now, a lot of households, millions of people, potentially even you, have fifty to one hundred thousand dollars or more of new additional home equity that didn’t exist before the pandemic. This can be a very cost-effective way to tap into relatively low-cost ways of financing a remodel project. If you use something like home equity line of credit or some other products that tap into that, you can get financing for your project at a much lower rate than with credit cards. Do be careful though, because with these products, you do run the risk of losing your home if you can’t make the payment. Just like a mortgage, it’s tied to your home, so you want to be very careful and comfortable with those tradeoffs.”