How to finance your home improvement

Modified on Mon, 14 Apr at 4:15 PM

The Best Ways to Finance Your Home Improvement: A Comparison Guide

Home improvements can add comfort, better functionality, and value to your home, but they can be costly. Choosing the right financing option is key. Here’s a comparison of three common ways to fund home renovations: personal loans, home equity lines of credit (HELOCs), and mortgage refinancing.

1. Personal Loans

A personal loan provides you with a lump sum from a bank, credit union, or online lender. It’s usually unsecured, meaning no collateral is required. Here are some pros and cons if you take a Fig personal loan :

Pros:

Fixed Repayment Plan: Predictable monthly payments with a set timeline.
No Collateral Required: A Fig unsecured personal loan means you don’t need to put up assets like your home or car.
Customizable Payment Terms: Some lenders, like Fig, offer options to adjust payment schedules to fit your financial situation.
Faster Access to Funds: Compared to refinancing or HELOCs, personal loans can be processed and funded quickly, helping you cover expenses without long delays.

Cons:

Higher Interest Rates: Can sometimes be more expensive than a secured loan.
Limited Borrowing Amount: Loan amounts may not cover larger-scale renovations.
Immediate Repayment Required: Since You get the entire loan amount when take the loan, interest starts accruing on it and repayment obligations start right away

2. Home Equity Line of Credit (HELOC)

A HELOC is a revolving credit line secured by your home’s equity, allowing you to borrow as needed.

Pros:

Flexible Repayment: Interest-only payment options are available.
Lower Interest Rates: Can be more affordable than personal loans.
Mostly higher Credit Limits: Ideal for larger or ongoing projects.
Pay Only What You Use: Interest applies only to borrowed amounts.

Cons:

Variable Interest Rates: Interest rates can vary over time which means that payments can increase even if the borrowed amount stays the same.
Your Home is Collateral: Non-payment could lead to foreclosure of your home.
Longer Process & Additional Fees: HELOCs may require registering an additional lien on your property, which can extend the approval process and incur extra costs, similar to mortgage refinancing.

3. Mortgage Refinancing

Refinancing replaces your existing mortgage with a new one, while allowing you to cash out equity for renovations.

Pros:

Lower Interest Rates: Typically cheaper than other loan options.
Higher Borrowing Potential: May be suitable for major projects.
Extended Repayment Terms: Lower monthly payments over a longer period when compared to a personal loan.

Cons:

Closing Costs and Fees: Refinancing comes with additional costs.
Long-Term Debt Commitment: You might be paying off renovations for years.
Risk of Foreclosure: Since your home is used as collateral, failing to make payments could put your property at risk.

Choosing the Right Option

Personal loans are usually best for smaller projects as they provide fast funding with predictable payments.
HELOCs work well for ongoing or phased renovations with flexible borrowing.
Mortgage refinancing can be ideal for homeowners looking for the lowest interest rates and larger loan amounts.

Each option has pros and cons, so consider your budget, loan terms, and risk tolerance. Consulting a financial expert can help you make the best choice.

Final Thoughts

Financing your home improvement the right way helps alleviate some of the stress from a renovation. Whether you choose a personal loan, HELOC, or mortgage refinancing, be sure to evaluate interest rates, repayment terms, and long-term affordability.

Need help funding your renovation? Explore personal loans with Fig today and take the next step toward your dream home!

Disclaimer:
We do our best to provide useful information. However, we cannot guarantee that the information is complete, accurate, up-to-date or otherwise reliable for any particular purpose. This article is provided to you as information only and not as advice tailored to your reality.