Refinancing to Remodel Your Home: Top Considerations

If you're hoping to increase the value of your home for resale or need to make some improvements to make your home livable or more comfortable, you may consider refinancing your home to pay for the project. There are multiple lending and remodeling options available to you for each project, but such a large undertaking should not begin without serious financial consideration.

Refinancing Rates

Before you consider refinancing, take a look at the current economic climate and remember what it was like when you initially financed your home. Depending on these factors, you may be able to get a better rate now than you did initially, especially if you have a history of paying a mortgage on time and have improved your credit over time.

Make the Terms Work

Refinancing can only pay for your remodel if you get the appropriate amount. When you refinance, you can choose from several options to refinance your home, including borrowing against the amount you've already paid off or extending the term of your current mortgage over a longer term to allow for a lower rate, enabling you to make out-of-pocket remodeling costs.

Estimates for Remodeling

If you'd like to refinance your home, you should request estimates from multiple trustworthy contractors. This paperwork will help your lender make a decision regarding terms of refinance. If you wish to eventually sell your home (or if you are approaching retirement and want to leave your heir(s) a marketable property), consider improvements best suited for resale value, such as updated kitchens and bathrooms.

Experts suggest a remodeling budget of "80 percent of what you can afford." This allows a cushion in case your projects cost more than initially predicted-which can easily happen if your home contains hidden water, mold or termite damage.

Multiple Lending Options

Your current lender or bank is not your only option for refinancing. Consider hiring a mortgage broker. A broker can offer you a diversity of options for refinancing or opening a new loan to finance your remodel.

Emotional Attachment and a Second Opinion

Is your emotional attachment to your home strongly outweighing your commitment to financial stability? If moving is a more financially-beneficial option than refinancing to remodel your home, prepare an estimate of the actual costs involved in both options and present the estimate to a trusted financial consultant.

While emotional and sentimental value can be priceless when it comes to something as central and significant as a home, a decision based on emotions alone can cause a major financial setback. Consult with an objective professional for best results.

Weighing concerns of comfort in your home against financial stability presents challenges, but with several lending and remodeling options available, you should be able to come to a financially-beneficial solution with the help of your mortgage broker and financial experts.