Nate and Danielle discuss the various ways to pay for a home remodel and the pluses and minuses of each.
We are currently thinking about redoing our kitchen and master bathroom. This decision is revolving around the concept of staying at our current home and making it what we want or moving to a new, more expensive, home to get what we are looking for.
Our main goals if we did a remodel is to remove a wall, update the cabinets, and replace the countertops. Images below:
Estimated cost of redoing our kitchen and bathroom; $30,000.
We could pay for it by saving for 1.5-2 years or borrowing the money.
Home Equity Loan
- Fixed interest rate ~5.5% right now
- Lump sum
- Must have 20% of home value paid off
- Our home is worth about $370K and we owe about $270K, so we are good there
- Also called a second mortgage
- Usually 5-15 year terms
HELOC or Home Equity Line of Credit
- Variable interest rate (lowest I found was 5.9% but it goes up into the 9% range)
- Draw money as needed
- Pay interest only on the amount you draw
- Interest only payment options (yuck)
- Basically is a credit card
- Usually 10-20+ year terms
Examples of how this could work for us:
|Type||Interest||Terms||Monthly Payment||Total Costs|
|HELOC||8.1%||30 years||$222||~$80K (166% of the original loan)|
|HELOC||6.05%||30 years||$151||~$46K (53% of the original loan)|
|Home Equity Loan||5.59%||5 years||$566||~$34K (13% of the original loan)|
|Home Equity Loan||5.99%||10 years||$332||~$40K (33% of the original loan)|
|Home Equity Loan||6.44%||15 years||$260||~$46K (53% of the original loan)|