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Life insurance borrowing
If you've got a cash-value life insurance policy, one
of its benefits is your ability to borrow up to the
policy's cash value (but not the earnings). Not only
that, but there's no set repayment schedule or even
a required monthly payment.
That said, there are drawbacks. You're
not actually borrowing from yourself, you're borrowing
from the insurer; the cash value serves as collateral
(an important technicality). Your loan balance could
end up growing faster than the cash value of the policy
if you don't pay it back. Even worse, if the amount
that you owe exceeds the cash value, you'll get a bill
to pay the difference, and you may face tax consequences.
Like
borrowing from your retirement, this is an option you should exercise as a last
resort, not your first. Pros:
There is no set repayment schedule; you can borrow up to the cash value of the
policy.
Cons:
There are possible tax consequences, and your payments
could eat into the collateral.
Private
loans
Private loans can be had from any number of sources,
including the contractors who do your improvements or
even the stores from which you bought the supplies to
do it yourself. These unsecured loans often have higher
interest rates and fees, but it's also often fast and
simple to get approved. You won't be able to deduct
any of the interest from the loan on your taxes, as
you can with a variety of home loans and lines of credit.
Pros:
Private loans boast fast approval times.
Cons:
These loans have higher interest rates and fees.
 |
Financing your remodeling project | |
|
| | Upfront costs | Approval
process, etc. | Collateral required | Tax
benefits | Tax consequences | Payment
terms | | Credit cards |
| Store
credit cards |
| HELOCs |
| Home equity
loans |
| Refinance |
| Title I |
| 401(k)/IRA |
| Life
insurance borrowing | | Private loans |
| Erin
Peterson is a freelance writer based in Minnesota.
| -- Posted: April
12, 2006 | | 
