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Home Renovations Paid By Refinance?


Home Renovations Paid By Refinance?

With interest rate near record lows and a little equity in your home, it might be a good time to do a cash-out refinance and with that money you can do some home renovations.  In just one mortgage transaction you can refinance to a lower interest rate and take out money against your home at the same time, giving you a bunch of possibilities in which to use your newly acquired funds.  There are many options to choose from like paying off debt, going on vacation, putting money into college funds, or is using the cash for home renovations the right idea?

Advantages Of Refinancing For Home Renovations

The main reason for refinancing in the first place is to receive a lower interest rate so that your monthly payments are cheaper, resulting in paying less for your loan over the duration of the loan itself.  Depending on what your current interest rate is, cashing out for home renovations and getting a lower rate may actually result in a lower monthly payment.  Let’s jump in to the numbers to see this is an example.  If you started off with a 30-year loan for $250,000 at a 6% interest rate your monthly payment for principal and interest would be $1,500.  If you have had the loan for 5 years, the current amount you will owe on the loan will be $232,300.  Now let’s say that you took $15,000 out in cash and refinanced for another 30-year term at a 3.5% interest rate, your payment would now be $1,110 for a savings of $390 per month.  If you refinanced into a 25-year term at 3.5% interest rate your payment would be $1,238 for a savings of $262.  So the end result here is that you save $262 per month, you get $15,000 in cash, AND your loan is still on pace to be paid off in 30 years.

Disadvantages Of Refinancing For Home Renovations

The one main mistake you do not want to make when doing a cash-out refinance for home renovations is to take on more debt than you started with, especially if you can’t afford your monthly payment to increase.  Yes, you may have received $20,000 from your cash-out but if you now need to pay an extra $250 per month, you have to ask if it was truly worth it?  If you do the math on this, the $250 extra per month will eat through the $20,000 in 80 months or 6.5 years.  You need to make sure you go over the numbers of your new payment carefully and be prepared for whatever that new amount is.  The key is working with an experienced lender who has your best interests in mind, and that is where I come in to play.

Home Renovations: Making The Decision

Let’s say you are committed to a cash-out refinance for some home renovations, you need to be honest if these home renovations are what you need or what you want?  You also need to decide if these renovations are to increase the value of your property or will serve a long-term benefit.  If you are 100% certain these home renovations are right for you and you can afford the new monthly payment, then by all means, go forward with your plans!  Getting that kitchen, patio, basement of your dreams can be had if you have the equity to take from your home.  With interest rates so low, now is the time to do this.  If you give me a call I can guide you through your options and get you prequalified for a new loan.  You can reach me at 888-900-1020,, or


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