If you love your home and your neighboorhood, you may find yourself struggling with the idea of upgrading to a larger place and selling off your home. Moving versus remodeling has always been a debate for homeowners as they look for ways to stay within their budget, but have the home of their dreams. Mortgage rates are always moving, but the last decade we have seen ups and downs over the years. The current trends looks like the rates are starting to increase according to Freddie Mac:
Remodel or Sell?
One industry that is continuing to soar is home remodeling. With many people feeling like they are being priced out of the market, opting for home remodeling has allowed them to keep their dream home, but update it with current design elements and additional space. In 2018, home remodelers spent more than $300 billion, and this number is expected to increase for 2019. About 40 percent of U.S. homes are currently 48 years or older, leaving the ability to remodel a home an option for many people. Home remodeling has always been thought to be something to do when you want to sell a home, or soon after the purchase of an older home. However, with new construction some people are finding staying in their homes is the best decision for their needs.
Deciding to Remodel with a Home Refinance Loan
Bankrate reports that 70 percent of the homeowners on the fence about remodeling or moving end up choosing to remodel their homes. Refinancing your mortgage or opting for a home equity loan can provide the extra cash you need to make the improvements you want to your home. A refinance is basically a cash-out loan or a rate and term refinance. With the rate and term refinance, you won’t have money changing hands, you will end up obtaining a new loan for the home, with the closing and funds paying off your old loan, leaving you with the money to use for the home remodel. A cash-out refinance will allow you to turn the equity in your home into cash.
It is important to remember, you WILL have closing costs. This is something a lot of people forget about when they are talking about refinancing a home loan. The closing costs will be 1-1.5 percent of your loan amount, even on a refinance loan. It is important to look at your financial options when considering the best decision to make for your family.
What is a Home Equity Loan?
A home equity loan functions differently as it normally has lower interest rates from a personal or unsecured loan. The loan is secured by your property, which means if you default on the loan or home equity line of credit, the lender can come after your home. A home equity line of credit is referred to as a HELOC and it’s tied to your home’s equity. You will be able to borrow as little or as much as you want of your credit line but it will have a set amount. It is important to know you may need to pay transaction fees when you do make a withdrawal, and you could have inactivity fees if you don’t end up using your credit line based on a specific period of time. Normally you will pay interest during the draw period and then you will pay back the principal plus the interest when you are in the repayment period.
Traditional Home Equity Loans
Traditional home equity loans are different as you have a primary mortgage, then you are obtaining a small, second loan against your property based on the equity you built in your home. If you default, the lender will be able to come after your home after the primary lender when the home goes into foreclosure. A home equity loan will have a higher interest rate from other home loan options. North Star Mortgage will look at all the opportunities that are available to determine the best one for your financial and personal needs.
- A home equity loan is a good choice for a borrower that would like the security of a fixed interest rate. Homeowners looking for a large sum of money for a certain purpose need to consider this, and you must remember that it’s a one-time loan. You will not be able to pull more money out of the home once you have closed on your loan.
- A HELOC is best suited for people that need access to cash over time, versus a one-time payment.
- If you plan to stay in your home for a long time, a home refinance is a good idea as it will allow you to stay in your home for a longer duration. Keep an eye on those interest rates though, and snag a new loan when they are low. Since they are steadily increasing, we recommend calling our office to have a consultation about a refinance loan.