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Options for Financing a Kitchen Remodel

Finding the money to pay for a kitchen remodeling project may be the most important step in your project. After all, getting good prices on materials and labor doesn’t do any good if you can’t pay for things. You can choose from several financing methods, depending on the scope of the project, but what makes one better than another? Let’s look at the options that work for most folks and should work for you, too.

As with any financial matter, consult with your personal banker, investment banking counselor, or tax advisor

  • Refinance your home: Quite a few homeowners pay for a new kitchen by refinancing their home. Most have built up a considerable amount of equity in their home. Equity is your home’s current assessed value versus the total amount of mortgages or loans against that value. Refinancing is the process of paying off the existing mortgage (or mortgages) based on the current value of your home.

    The best thing about a refinanced mortgage is that the interest on the loan is still tax deductible. You not only generally lower your monthly mortgage payment, but quite often you can actually put cash in your pocket because many homeowners have considerable equity in their home. This means there’s more value in the house than dollars owed on loans, so the difference can be money back to the homeowner.

    Refinancing a home is almost the same as purchasing one, so you’ll need all the closing documents from the current loan, employment information, and so on.

  • Apply for a home improvement loan: Many homeowners have enough equity in their home that a home improvement loan or second mortgage is a viable option. The security for the loan is the assessed value of your home versus the amount you wish to borrow. Second mortgage rates are generally a few percentage points higher than first mortgages; however, they’re still very affordable, and the interest on most second mortgages is tax deductible. You’ll find most first mortgage lenders also have second mortgage options available. Make sure you consult with a competent mortgage officer or your tax advisor before entering into a second mortgage.

  • Charge on a low- or no-interest credit card: If you’re disciplined and can stay on track and pay off the balance of your credit card every month, then one of these low- or no-interest cards might be a good way to pay for your remodel. Credit cards allow you to purchase what you need when you need it, without dipping into your savings. Plus, the monthly statements help you keep track of what you’ve spent.

  • Pay with cold, hard cash: Okay, most people don’t have thousands of dollars just lying around waiting to be used. But if you do have enough ready cash available, consider using it to pay for the project. You’ll have the satisfaction of paying for the project completely, plus you may just get some discounts on materials if you don’t need to charge things. Some retailers will offer discounts to customers who pay cash. The retailer gets their money immediately and doesn’t have to hassle with financing forms or credit cards.

    If you do plan to pay cash, consider opening a separate checking account for the project. A separate account really helps you track your spending because only the project expenses are recorded in the account.

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