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Home Improvement Guide 2007
On the money
Whether it's a fresh coat of paint or a total home renovation, sooner or later it comes down to paying for it.
On the money
Finding cash for your remodeling plan
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7. No equity? Time for a personal loan or line of credit
If you don't have enough equity in your home but have good or excellent credit, taking a personal loan or line of credit may be the way to go. They typically carry higher interest rates, but if the proceeds pay for home improvements that increase the value of your home, it's possible to get an appraisal after the work and refinance the loan at a lower interest rate.

The drawback is that you would have to pay closing costs on both loans, driving up your costs. There's also the risk that the housing market can't support a higher appraisal, making it harder to refinance. On the bright side, if you are careful with your record keeping, you might be able to deduct the interest from a personal loan following the same guidelines as a home equity loan or HELOC. "The only thing there is that you need to demonstrate that it was used to remodel and would have to keep good records to prove it was," Ferrara says.

8. Do's and don'ts of credit-card financing
Financing a renovation with plastic can have advantages and serious risks. On the positive side, many credit cards offer airline miles, cash back or other incentives for charging up large sums. If you are looking at tens of thousands of dollars, a 1-percent cash-back offer could mean hundreds of dollars rebated to you just for swiping your card.

If you want to use credit cards to take advantage of a teaser rate or a points program, one less risky way would be to apply for a HELOC before charging up a large balance. That way you don't have the high credit balance pulling down your credit score when you are applying. This method is risky, though, because if you are so much as an hour late on your payment, the bank could charge you interest retroactively for the entire term, wiping out whatever benefits you were able to eke out.

The serious drawback comes when you fail to repay the entire balance at the end of the grace period. While getting a $100 rebate check is nice, annual interest rates of 18 percent or higher quickly eliminate any headway your cash-back offer might give.

"I don't think there is any problem with paying through a credit card, as long as you pay it off at the end of the month," Ferrara says. "But that should not be the long-term financing vehicle that you use. Credit card money is very expensive. You are typically much better off getting a home equity line if you are looking for a way to carry a balance."

-- Posted: April 4, 2007
 
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Home Equity
Compare today's rates
NATIONAL OVERNIGHT AVERAGES
$30K HELOC 4.29%
$50K HELOC 4.04%
$30K Home equity loan 5.09%
Rates may include points
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