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With mortgage rates at all-time lows, it may be time to consider looking into getting that addition put on your house, or finally remodeling your kitchen or adding that additional bathroom. Homeowners who want to begin major home improvement projects may be able to finance those projects using the equity in their homes. You can tap into your home equity or cash out by refinancing your home for more than the balance that you owe on your old mortgage. And because mortgage rates are so low, you may be able to do it without a significant increase to your monthly mortgage payment.
Let’s say you want to add a small addition onto your home, and the project is going to cost you a total of $20,000.00. If you currently have a mortgage of $100,000 being financed over 30 years at eight percent interest, your monthly payment is approximately $970 per month. If you refinance at 6.5% interest, and add the $20,000 into your refinance, bringing your new mortgage balance to $120,000, your monthly payment will only go up approximately $25 per month. Better yet, if you refinance at 5.5%, your monthly payment will actually decrease.
If you have already had the addition added to your home, but you paid with a credit card or another high-interest loan, you may still want to look into refinancing. You can take the cash proceeds from the refinance and pay off the high-interest loan that you took out to build the addition. You will eliminate the monthly payment for the high-interest loan and the interest paid on the refinance may be tax deductible.
Even if you are planning on selling your home, that is even more of a reason for you to take advantage of this opportunity. Some home improvements will add more value to your home than the cost of the improvement itself, bringing you a better price for the home when you sell it. Certain remodeling projects like kitchen redesigns and bathroom additions are examples of this, and they make the home easier to
sell.
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