While it's fun to imagine how you'll
use a new space in your home -- a new master bathroom,
a renovated kitchen or a spacious home office -- figuring
out how to pay for it is another matter entirely. Understanding
the details of your financing options can help you make
a decision that's as good for your pocketbook as the
renovation is for your house.
Major credit cards
If you have a smaller project --
or a great introductory offer, like zero-percent interest
for a year -- credit cards can be a good option. With
some cards, you may earn rewards or cash back valued
at a few percentage points of the total amount that
you spend. If you already have credit cards with high
limits, you won't have to go through the sometimes lengthy
application process required by some loans or other
forms of credit.
The downside of this option, though, can
be significant. If you can't pay the cards back in a
timely fashion, you'll have to pay interest that will
likely be far more than the perks you earned from the
outset. And because rates are variable, you may end
up being hit with even higher monthly payments than
Scott Bilker, founder of Debtsmart.com,
says it's important to be disciplined if you choose
to pay by credit card. "The trick," he says,
"is to get as much money back (in rewards or cash)
as you can, and then have backup financing available."
paperwork needed for established credit lines; also,
there is a possibility of cash back or other rewards.
is a possibility of high interest rates; variable
rates mean you could pay more over time. You may or
may not have limits that allow you to put the full
amount of your improvements on the card.
Store credit cards
Cards from home improvement stores like The Home Depot
and Lowe's can be a good option if you know you can
pay off the balance fairly quickly. Many cards provide
an introductory offer with no interest for a set period
of time (generally six months to a year on total purchases
of $300 or more), while others will provide periodic
specials on a range of products.
Like traditional credit cards, you want
to make sure you can pay off the balance in a timely
manner to avoid high interest payments. Watch out for
expiring introductory offers -- if you don't pay off
the balance in full by the time the offer ends, you'll
generally be hit with all of the back interest, as though
you never got the offer at all.
cards offer the same pros as major cards and occasionally
offer specific bargains for home improvement buys.
Cons: Cards can only
be used at a single chain of stores.
Home equity line
A HELOC, or home equity line of credit, is a bit like
a credit card. It's also an increasingly popular option
for homeowners, according to Matt Coffin, founder and
president of LowerMyBills.com.
The main difference is that the line of credit is secured
with your home. In other words, if you don't pay on
time, there's a chance that you may lose your home.
The rates are variable and will typically
be higher than the rates you could get on a second mortgage
-- though likely lower than those of credit cards. Often,
a HELOC will start with a very favorable rate and adjust
Posted: April 12, 2006