If you are one of the more than half of Americans that plan to renovate this year, paying for those home improvements will be at the top of your to-do list. With the warm weather in full swing and with summer being the ideal season for renovations, many homeowners are gearing up to get started on their renovation plans. However, with the average cost of a home renovation coming in at around $13,000, there is no doubt that your home renovations may be a costly one. More extensive home remodels average $46,798. When it comes to your options for financing a home renovation, refinancing has soared in popularity during recent years. But, how do you know that refinancing is the right move for your renovation plans? More importantly, how can you plan effectively to get a good refinancing deal? Here are a few great tips to get you started.
Is Refinancing To Renovate Right For Me?
Cash-out refinancing has boomed during the pandemic and homeowners are taking advantage of the low-interest rates right now. The historically low-interest rates can actually work in your favor, and with the right deal, you could be paying less than if you had chosen a personal loan. Refinancing has also allowed homeowners to create their dream homes using the equity they have built up, and a starting canvas. With the housing market being so hot right now, the chances of finding your dream home within your budget are quickly diminishing.
On the other hand, refinancing does mean you are restarting your mortgage. Each lender will also have its own requirements on the amount of equity you will have to retain (normally 15 to 20 percent). In some cases, refinancing may not always equate to a better mortgage deal. You are also required to pay closing costs on your home again.
Don’t Just Look At Rates, Look At The All-Round Package With Lenders
Getting a good refinance package is not just about the interest rates. There are also lender’s fees, closing costs, and other costs to think about. Instead of just focusing on the savings you may make by using refinancing to fund your renovations, look at the overall cost of the process, and whether it makes good financial sense according to your budget- and other financing options. For instance, those refinancing can expect to pay 2 to 3 percent of your remaining principal in closing costs. However, Experian estimates that closing costs can sometimes go as high as 6 percent of your principal.
Refinancing fees also vary by state. For instance, the closing costs for a home in Illinois were $5609 or 2.39 percent of your home price. In Indiana, that drops to $1,909 or 0.99 percent of the sale price. For more clarity before applying, The Home Loan Expert or mortgage brokers specializing in refinancing in your state can give you information on the fees attached to the process.
Research The Values Of Your Planned Renovations For Reference
Ideally, if you are going to use refinancing to draw cash for renovations on your home, they should build up your property’s value. Have a look atrenovations that add value to a home before deciding on refinancing as your choice of funding. For instance, a major kitchen remodel recoups up to 59 percent of its cost. If you plan on selling in the future, you want to be assured that your added investment will pay off.
Set Up A Budget Around Your Predicted New Mortgage Commitments
A key consideration when remortgaging is whether you can afford the larger payments. Essentially, refinancing is taking on a larger mortgage by using your built-up home equity. You should think about whether your budget in the upcoming years can comfortably afford those larger mortgage payments. Even with low-interest rates, if you increase your borrowing or shorten your loan term, your payments will increase. It is also good to have a bit of flexibility in your proposed renovation budget. Renovations rarely go according to plan or budget.
For some, refinancing could be the perfect way to pay for their planned home upgrades. However, it is not always the ideal answer, and neglecting to do adequate planning before applying could mean you are left surprised by the reality of the process.