Your next home improvement project might be as simple as adding flow restrictions to faucets to save water, or you may need to replace the roof or floors. Little jobs won’t require any special financing. Paying for the big ones is another matter. It can cost $20,000 or more to remodel a kitchen. Select your financing method carefully because the wrong choice can cost you thousands in interest.

Paying Cash

If you have a healthy savings fund, you might be able to pay for your renovation in cash. There’s a lot to be said for paying cash for a remodeling project. In a nutshell, you don’t pay finance charges. Being able to complete your improvement project without the burden of debt only increases the return on your investment.

Credit Cards

Credit cards are probably a poor choice for home improvement projects since they charge interest rates of fifteen percent or more. A credit card can be helpful to pay for things short-term if you can pay off the balance in a month and avoid finance charges or if you take advantage of a zero-interest offer.

Tap Your Equity

If you have enough equity, you can borrow against it to pay for remodeling. Interest rates for a home equity loan or line of credit are comparable to mortgage rates. You’ll need to have good credit and your house will be collateral for the loan as well as for the original mortgage.

The Refinance Option

Another way to use home equity to finance a remodeling job is refinancing your existing mortgage, and borrow enough extra for the home improvements. Lenders may require you to have up to twenty percent equity to refinance and take cash out in the process. However, you may get better interest rates. To learn more, you can use an Austin mortgage calculator to calculate your payment breakdown and see if refinancing is right for you. Your payments could jump since you are adding to the total amount you owe.

Personal Loans

A final option is a personal loan. These are short-term loans with terms of two to five years. Interest rates are mostly lower than for credit cards. If you have good credit, talk to your bank or credit union about this option.

The bottom line is simple. The total cost of a home improvement project includes not only what you pay for the work itself, but also all the finance charges that get added on. Keeping those finance charges low makes home remodeling more affordable.