Renovate Your Home to Accommodate Your Needs

No matter how much you love your home or how many memories you’ve made within its walls, at some point, it might no longer fit your needs.

Maybe you’re ready for a more modern space, or maybe you need additional square footage. Whatever your pain, you might feel that it’s time to move on. But while a new home can solve your biggest headaches, getting a space you love doesn’t have to involve a move.

A renovation can transform your home so it can accommodate your needs. And getting cash for a project has never been easier. Blue Spot Home Loans offers some of the most competitive interest rates today, allowing you to put your equity to good use and give your space a fresh new look.

Your Loan Options for a Home Renovation

With any renovation project, you need access to cash. One good thing about homeownership is that your mortgage can act as a forced savings account. You’ll earn equity as your property increases in value (depending on your real estate market) and your mortgage balance decreases.

Rather than take your equity and use it as a down payment on your next property, you can borrow against your equity and put the cash toward a home renovation. Home equity solutions include:

• Home equity loan. A home equity loan, also called a second mortgage, involves borrowing a lump sum of cash from your home’s equity. You can typically borrow up to 80% of your home’s value (i.e. your combined loan-to-value (CLTV) of all loans attributed to the property would not exceed 80% of your home’s value) with a repayment term up to 20 years.

• Home equity line of credit (HELOC). Rather than receive a lump sum of money, a HELOC is a revolving line of credit secured by your home’s equity. You can borrow against your equity on an as-needed basis for home improvements and other purposes. The draw period might be five to 10 years, followed by a repayment period up to 20 years. Monthly payments fluctuate depending on how much you borrow.

• Home Refinance. When mortgage interest rates decrease, another option is a cash-out refinance. This type of loan creates a new mortgage, so you’ll have to re-submit a loan application, go through the underwriting process, and pay closing costs again. Refinancing makes sense if you’re looking to modify the terms of your original mortgage. For example, you could take advantage of the lowest mortgage rates today or convert an adjustable-rate to a fixed-rate mortgage.

Why Use Your Home’s Equity for Renovations?

Even though your personal savings and a credit card can finance a home renovation project, using your home’s equity can make more sense in the long run.

The last thing you want to do is drain your savings on a home renovation. If you deplete your cash reserves, you won’t have funds left for an emergency. And if something happens, you might have to use a credit card until you rebuild your savings account.

Using your equity also makes sense because financing a home renovation with a credit card is costly. Credit card interest rates tend to be higher than mortgage interest rates, including rates for a home equity loan and home equity line of credit. So, you’ll end up paying more for a project with a credit card. The exception is if you use a 0% interest credit card and pay off the balance before interest kicks in.

Plus, a home renovation project could potentially max out your credit card and significantly increase your credit utilization ratio. This is the percentage of credit used compared to your credit limit. A high credit utilization ratio (more than 30%) can lower your credit score. Because credit utilization ratios only apply to credit cards, getting a HELOC doesn’t have the same effect on your credit score.

Before turning your back on your current property, talk with the loan experts at Blue Spot Home Loans to see which equity solution works for you. Give us a call at (800) 976-5608 or fill out the contact form today.