Renovation recon: Figuring out the when and how of your next home reno

Hunt down the best financing options to upgrade your home.

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This article was sponsored by Navy Federal Credit Union. Navy Federal Credit Union is federally insured by NCUA.

Home renovations can breathe new life into your living space, enhance functionality, and boost property value—which comes in handy if you choose to rent out your property when you PCS. However, financing these projects can be a daunting task. With various options available, choosing the right one requires careful consideration. Let’s break down the three main home renovation financing options: Personal loans, credit cards, and home equity solutions.

1. Personal Loans

Personal loans are a popular choice for home renovation financing due to their flexibility and relatively quick approval process. The two main options are Home Improvement Loans and Personal Expense Loans.

Home Improvement Loan vs. Personal Expense Loan

Home Improvement Loan:

  • Purpose: Specifically designed for home renovation projects.
  • Loan Amount: Typically higher, depending on the scope of the renovation.
  • Interest Rates: Often lower than personal expense loans, as the loan is earmarked for property improvement.
  • Term Length: Can vary, but usually offers more extended repayment periods.

Personal Expense Loan:

  • Purpose: Can be used for various personal expenses, including home renovations.
  • Loan Amount: Generally less than home improvement loans.
  • Interest Rates: Might be higher since these loans are not restricted to home-related expenses.
  • Term Length: Usually shorter repayment terms.

Choosing between these two depends on the specific needs and scale of your renovation project. For extensive home improvements, a Home Improvement Loan might be more suitable, while smaller, less expensive projects could be managed with a Personal Expense Loan.

2. Credit Cards

Using credit cards for home renovations can be convenient, especially for smaller projects or when you need quick access to funds. Navy Federal Credit Union offers a range of credit cards that might fit your renovation needs.

Benefits of Using Credit Cards:

  • Rewards and Cash Back: Many credit cards offer rewards or cash back on purchases, which can be beneficial if used strategically.
  • Promotional APR: Low introductory APR offers can provide lower interest rates for a limited period.
  • Flexibility: Credit cards are versatile and can be used for various purchases related to the renovation.

Considerations:

  • Interest Rates: After the promotional period, credit card interest rates can be significantly higher than other financing options.
  • Credit Limit: Depending on your credit limit, using a credit card for large-scale renovations might not be feasible.

Credit cards are best suited for minor renovations or as a supplementary funding source alongside other financing options.

3. Home Equity: HELOC vs. Home Equity Loan

Home equity financing options are among the most cost-effective ways to fund large home renovation projects. They leverage the equity built up in your home, offering substantial loan amounts at relatively low-interest rates. The two primary home equity financing options are Home Equity Line of Credit (HELOC) and Home Equity Loan. Here is the difference between the two:

Home Equity Line of Credit (HELOC):

  • Structure: Works like a credit card with a revolving credit line based on your home’s equity.
  • Flexibility: You can borrow as needed, up to the credit limit, during the draw period.
  • Interest Rates: Variable rates that can change over time, often lower than personal loans and credit cards.
  • Repayment: Typically, you make interest-only payments during the draw period, with principal and interest payments during the repayment period.

Home Equity Loan:

  • Structure: A lump sum loan based on your home’s equity, with a fixed interest rate.
  • Predictability: Fixed monthly payments make budgeting easier.
  • Interest Rates: Usually lower than personal loans and credit cards, due to the security of home equity.
  • Repayment: Fixed repayment term, with equal payments throughout the loan duration.

Choosing Between HELOC and Home Equity Loan:

  • HELOC: Ideal for ongoing or phased renovation projects where costs might fluctuate. The flexibility to draw funds as needed is a significant advantage.
  • Home Equity Loan: Suitable for one-time, large-scale renovations with a clear budget. The predictability of fixed payments and interest rates can simplify financial planning.

Utilizing Navy Federal Credit Union’s Resources

It can be overwhelming when it comes to choosing the best way to finance a renovation. The good news is you’re not alone. All military members and their families, not just those who are members of Navy Federal Credit Union, have access to their Home Project Financing Center. This resource provides a comprehensive suite of tools and resources to help you navigate your home renovation financing options. Their expert advisors can assist in determining the best financing solution for your specific needs and financial situation.

  • Personal Loans:  This is a great way to get funds quickly. They can also be useful for larger-scale repairs or small emergency home repairs.
  • Credit Cards: Convenient for smaller projects with potential rewards and promotional APR offers.
  • HELOC and Home Equity Loans: Cost-effective solutions leveraging home equity for substantial renovations.

Crunching the Numbers

Before committing to any financing option, it’s crucial to understand the costs and repayment terms. Navy Federal Credit Union’s online calculators can help you estimate monthly payments, interest costs, and compare different financing scenarios. These tools are invaluable in ensuring you make an informed decision that aligns with your financial goals.

Check out the stories written by Bethany Bayless. Engage with thought-provoking content that offers unique perspectives on military endeavors.