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Home Improvement 2006  

Paying the price

  Once you've attached a price tag to your next project, check out if and how you can afford it.
How to pay for your home improvements
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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 costsApproval process, etc.Collateral required Tax benefitsTax consequencesPayment 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
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