Recent low-interest rates have caused many homeowners to consider the possibility of refinancing their mortgages to pay for home renovations. This choice would also afford homeowners the added benefit of decreased mortgage payments.
Benefits of Funding a Remodeling Project by Refinancing Your Mortgage
There are many benefits for homeowners who choose to refinance their mortgage in order to finance their home remodeling project. However, it must be remembered that the refinance should take place at the correct time.
Lower Interest Rates
The number one benefit to refinancing a mortgage loan is a lower interest rate. A mortgage loan with a lower interest rate allows the homeowner to pay less money over the life of the loan. This extra cash can provide extra money for your family to fund both short- and long-term financial goals.
Shorter Loan Terms
Refinancing a mortgage also provides the homeowner with the opportunity to pay the loan off in less time. Many homeowners have converted 30-year loan terms to 15-year terms. Also, equity in the home is accumulated faster. The only potential downside is that monthly payments may need to be a little higher to secure these benefits.
This benefit is not relevant to people who do not plan to keep their homes. This is one reason experts would tell a homeowner not to refinance — if you intend to sell after remodeling.
Source: When to Refinance Your Mortgage
Potential Risks of Refinancing Your Mortgage to Pay for Home Remodeling
Like most things, there are potential risks to refinancing your home to pay for a remodeling project. The major con with home refinancing is that monthly payments can possibly be increased. This is especially true when you take a cash payment to pay for things like remodeling the home. These higher monthly payments can signal a domino effect that can greatly influence financial decision making for the family. For example, higher monthly payments could result in less money being paid to 401(k) plans.
Keep in Mind
There are many potential benefits for homeowners considering a mortgage refinance loan to fund a home renovation project. However, it is important to remember two main points: The benefits are greater to homeowners that wait until the right time. Also, the option should only be used by individuals and families who intend to keep their homes after the remodeling is complete. All in all, refinancing your home to pay for remodeling is a sound financial decision. But remember: Don’t refinance if you plan to sell after remodeling.
At Foster Green LLC, our services are centered around you. Talk to us today about your vision for your next home remodel!