HELOC or mortgage: Some interest rates start at 2.5%. What is right for home renovation?

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If you spent a lot of time at home last year, you may have had it with your old kitchen, very small home office or your elusive backyard. You are thinking about home remodeling, but you are not sure how to pay for it. Of course, using your own savings for a home renovation is the ideal scenario, but if you do not have it and want to renovate, options like a Residential Equity Credit Line (HELOC), personal loan the mortgage share loan can overcome your obstacle. “When it comes to renovating your home, the financing options are actually quite plentiful,” says Erin A. Alton, a mortgage consultant at Fairway Independent Mortgage Corporation in Annapolis. But, he adds: “There is no one-size-fits-all product.” See how you can decide between a HELOC, a mortgage and a personal loan.

HELOC

A home equity line of credit is a loan that allows homeowners to access cash as needed, using their home as collateral.

The advantages of a HELOC: They have two major advantages over mortgages and personal loans: Interest rates for HELOCs at the moment tend to start very low (some percentages now start around 2%), and offer homeowners flexibility as you get the money you need, instead of receiving the money in a lump sum as you would with a equity loan or personal loan. “You can use what you need and not pay any interest on the rest, although it is available if you need it,” says Bobbi Rebell, a certified financial planner and personal finance specialist at Tally. Andrew Ragusa, CEO of REMI Realty in New York, says HELOCs are one of the best ways to lend money right now, as some borrowers can get them at an interest rate of 2% to 4% depending on your credit score. “There is no monthly maintenance fee and you only pay interest on the amount you use,” Ragusa added.

Disadvantages of a HELOC: That said, they are not perfect. HELOCs may come at a cost of closing and may take a few weeks or more to receive the funds. In addition, HELOCs usually have variable interest rates so that their interest rates can be higher than a mortgage. Another thing to keep in mind: “You can pay them off and then borrow again. “But if the value of your home drops or you have a change in your creditworthiness, the bank can reduce or cancel the loan,” says Rebell. And, of course, you use your home as a guarantee with a HELOC, so if you do not repay it you may lose your home.

For whom does a HELOC work best: People who are not sure how much money their project will cost and anyone who wants to consolidate high interest rate debt.

Mortgage share loan

A home equity loan is a lump sum that a homeowner can borrow from the equity he has built on his home.

The advantages of a mortgage: Although mortgage rates often start higher than HELOC rates right now, they are fixed and usually offer lower interest rates than personal loans. with some share loan rates starting at around 3%. Some professionals say that it’s wise to lock in this low interest rate for the duration of a loan right now, especially if you know it will take some time to pay off. “You borrow all the money at once and lock in a steady monthly payment for the entire repayment period,” explains Greg McBride, chief financial analyst at Bankrate. You can also often get a good mortgage: “If you have a lot of equity in your home, then you can probably get a big enough loan, although usually the combined mortgage amount and the amount you owe on your mortgage can not “exceeds 85% of the value of your home,” says Jacob Channel, senior financial analyst at Lending Tree.

Disadvantages of a Mortgage: You need to get the money in a mortgage as a lump sum that you start repaying quickly, so if you do not need the money all at once, this may not be the right choice for you. Another downside to a mortgage is that you will probably have to pay between 2% -5% on the closing cost, according to the Channel. And unlike personal loans, which tend to be repaid quickly, home equity loans can take up to two to six weeks to close. And Rebell warns that with this option, you are using your home as collateral, so if you run into financial difficulties and can not make payments, your home may be in danger.

Who works best for a home equity loan? A home equity loan is great for homeowners who know how much money they need to complete a project.

Personal loan

A personal loan is a one-time cash payment from a lender that is usually repaid in monthly installments.

The advantages of a personal loan: A personal loan can offer the easiest and fastest approval, with funds that may land on your account within 72 hours. And because these loans are usually unsecured, you do not put your home at risk if you fail to repay them (your credit, however, is another story).

Disadvantages of a personal loan: “Because it is not secured, the amount you can borrow will be less than what a home equity product can provide and the interest rate will be higher,” says McBride. The channel notes that although you will receive a one-time payment and do not necessarily need to provide collateral, higher interest rates and lower repayment terms may mean that monthly payments are more difficult to keep up with. Personal loans are also subject to commissions, which can be an average of 1% to 8% of the total loan.

Who works best for a personal loan: Borrowers who need funds faster may want to consider a personal loan.

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