In a beautiful and fully-equipped kitchen, preparing delicious meals is a breeze. In addition, sprucing up the hub of the house can entice buyers and even increase your home’s value. However, you’ll need some extra cash for the remodeling job before you can entertain guests with your new double ovens and granite countertops.
Remodeling your kitchen is one of the most rewarding types of home improvement work. Because, after all, everyone in your family spends time there every day. A kitchen remodel in 2022 will likely cost you between $13,341 and $37,800. Here we’ll go over some of the kitchen remodel financing options and the factors you should think about before making a final decision.
Types of Available Kitchen Remodel Financing Options
Kitchen remodeling loans can be split into two distinct categories: secured loans and unsecured loans. We have explained both these terms in detail below.
Unsecured Loan Options
When you apply for an unsecured loan, the lending institution does not demand collateral in exchange for the money you borrow. When applying for an unsecured loan, your credit score will be a factor. Unsecured loans can be broken down into two broad categories:
1. Credit Cards
Practically, credit cards are not loans. Small purchases can be made with a credit card. However, remodeling your kitchen with the help of a credit card is a good idea, but only if you plan to make only modest improvements. If you use credit cards for a major overhaul of your kitchen and don’t pay them off quickly, you could end up paying exorbitant interest. You should only choose this option if you know you can make the repayments without delay. Small purchases for the project can be made with a credit card and paid off quickly.
2. Personal Loans
Easy access to credit is a major draw for borrowers seeking personal loans. Most lenders can disburse the funds for an unsecured loan for a kitchen remodel quickly. The only issue is the interest rate. Interest rates are directly proportional to applicants’ credit scores; those with higher scores pay lower rates than those with lower scores.
Most borrowers prefer unsecured loans because they don’t have to put up any property as security. You can rest assured that your home will not be taken away from you in the event that you are unable to make your loan payments on time or at all.
Pros of Personal Loan
- Short application processes and fast approval times (typically within one business day).
- Borrowers with poor credit may still have a chance.
- Amounts can be adjusted up to a lender’s maximum allowable loan amount.
- The loan is not secured by any sort of collateral.
Cons of Personal Loan
- Potentially higher interest rates or APRs compared to some alternative methods of kitchen remodel financing.
- Repayment time may be shorter than that of a home equity loan or line of credit.
Secured Loan Options
Secured loans are extended to borrowers based on their creditworthiness and the value of their collateral. Typically, your home serves as collateral when you take on a large home improvement project like remodeling your kitchen remodel. The value of the collateral and your credit history are used by the lender to determine the loan amount and the interest rate.
Merits of getting a secured loan are as follows:
- Longer repayment time
- Lower interest rates
- Flexible EMI plans
However, since your house will be used as collateral, you should be aware of the potential consequences of defaulting on the loan. It’s important to find a plan that works best for your loved ones and your specific situation.
1. Refinancing
2. Home Equity Investment
You can get the money you need to make the repairs you want to make to your home by making a home equity investment. The investment firm buys into your home’s equity and provides you with a lump sum of money.
No regular payments need to be made at this time. A term of up to 30 years is available to you as well. You can buy back your equity by paying the original loan plus a percentage of the increase in the value of your home.
3. Home Equity Loan
In a home equity loan, the collateral is your home’s equity. When determining eligibility for a home equity loan, the amount still owed on the mortgage must be subtracted from the current market value of the home.
Your loan can be paid back in equal monthly installments or in a lump sum at the end of the loan’s term, whichever is more convenient for you.
Home equity loans are protected from the effects of interest rate changes and market fluctuations. You will instead have a fixed interest rate and a repayment period of anywhere from 5 to 30 years.
Pros of Home Equity Loan
- If the money is used to fix up your house, you can get tax benefits.
- Total borrowing costs are reduced relative to those of personal loans because of the lower interest rates.
- Ability to qualify even with weak credit if sufficient equity in the home is present.
- Higher loan amounts are determined by the value of the collateralized property.
Cons of Home Equity Loan
- If you are unable to make loan payments, you could lose your home as collateral.
- In order to get a home equity loan, you need to have a certain amount of equity. Typically, the combined loan-to-value of your mortgage and home equity loan cannot be more than 95%.
- An additional expense may result from the need for a property appraisal in order to ascertain the property’s equity.
4. Home Equity Line of Credit (HELOC)
The difference between a home equity loan and a line of credit is not always clear. The truth is that there are significant distinctions between these two types of financing.
Home equity lines of credit are revolving lines of credit that can be used over a set period of time, as opposed to the fixed-rate financing of a home equity loan. There are parallels between a credit card and the home equity line of credit. The collateral is the sole distinguishing factor.
A home equity line of credit (HELOC) typically has a 25-year term that is split into a draw period and a repayment period. Borrow up to your available line limit and pay only interest during the draw period, which lasts anywhere from 5 to 10 years.
The subsequent repayment period typically lasts between ten and fifteen years. While interest accrues, you have a set amount of time to pay it off along with the loan’s principal. If you’re confident that you can repay the principal and interest on time over the course of the HELOC’s entire term, this is an another kitchen remodel financing option you can consider.
Pros of HELOC
- As long as the home equity loan is used for renovations, the interest paid on it may be deducted from your taxable income.
- Because the home is used as collateral, the interest rate may be lower than that of an unsecured credit line.
- Unlike a personal loan or a home equity loan, a credit line can be used multiple times over the account’s lifetime.
- When compared to a personal loan, the repayment period for a kitchen remodel can be much longer.
Cons of HELOC
- Some homeowners run into problems due to over-borrowing
- If you default on your loan payments, the lender may foreclose on your home to recoup losses.
- Higher interest rates compared to home equity loans. Rates can change and even rise over time.
Best Kitchen Remodel Loans and Financing Options
If you are looking for kitchen remodel financing, here are the 5 best lenders:
