Remodeling Home Loans

Remodeling home loans can make dreams come true. Not only will you improve the value of your home but the interest paid on home remodeling loans is an excellent tax deduction.

If you have equity in your home and good credit, then a remodeling loan should be easy to get (although banks have been acting strange lately). There are a variety of remodeling home loans to choose from.

Home equity lines of credit allow you to use your loan as a revolving line of credit which means you only pay interest on the amount that you draw. For example, if you have a home equity line of credit of $100,000 and only need $20,000 to refinish your floors, then you only pay interest on $20,000.

Home equity lines of credit are variable rate loans based on the prime rate; if the prime rate goes down, so does your home remodeling loan payment. These remodeling home loans offer interest only options as well, which also lowers your monthly cost.

Home equity loans also make great home remodeling loans as well. They are fixed rate loans and fully amortized meaning you pay principal as well as interest. If you need the security of a set monthly payment, this remodeling home loan might be your better option.

Mortgage Refinancing - Most people buy a home for very specific reasons. Those reasons typically have more to do with life situations and very little to do with market considerations. When you marry, begin planning a family, or look at retirement you might suddenly find yourself wanting to buy a home.

Because of the importance of these life situations, you might pay relatively little attention to such things as the cost of borrowing. These things are often viewed as necessities at such times.

That's why it's quite common for people to negotiate a mortgage as best they can, and a few years later they find that loan rates have dropped considerably. Many home owners will accept the costs associated with mortgage refinancing in order to save themselves larger sums of money over the long term.

By refinancing your mortgage when rates have dropped more than a couple of percentage points you will be amazed at what you will save in interest costs. The effect this will have can take several different tracks.

The amount of interest charges you will save could allow you to pay more on the principle of the mortgage every month. This will allow you to pay your loan off sooner, if you wish.

Alternatively, with Mortgage Refinancing, you could choose to reduce your monthly payments. This will give you a bit more spending money each month. Still another option is to use the equity created by refinancing your mortgage to pay for home remodeling.

Getting a loan for the construction of a new house is different than getting a regular mortgage loan for a previously built house. It is very important for a person to understand their options when they are looking for a construction loan.

Fixed Rate Construction Loans

These come in a few optional formats. For example, there is a 30 year fixed rate construction loan and a 15 year fixed rate construction loan. While a 15 year fixed rate loan may seem like a good choice compared to a longer 30 year loan, it all depends on what a person can afford to pay for the monthly payment.

A 30 year fixed rate construction loan will require a person to pay more interest overall, but the monthly payments on the 30 year loan will be less than the monthly payments of the 15 year fixed rate construction loan. If a person can afford the more expensive payments, it would be smart for them to get the 15 year construction loan and pay off their house sooner.

Construction loans are converted to permanent mortgages once the construction is completed and paid for. Progress of construction is monitored by the lender, and the payments go directly from the lender to the contractor. The homeowner has no control over the timing of the payments when using these remodeling home loans.

There are one year Adjustable Rate Mortgages, as well as 3/1, 5/1, 7/1, and 10/1 Adjustable Rate Mortgages. This means that the initial interest rate stays in effect for 3,5,7, or 10 years, but then can adjust each year after that, up to a cap (which is usually 10% above the original interest rate).

Adjustable Rate Mortgages have both positive and negative aspects to them. Usually these mortgages have a lower interest rate to begin with than Fixed Rate Mortgages do.

But since they are adjustable, the interest rates on Adjustable Rate Mortgages will change and they will go up after a certain number of years. This adjustment can greatly increase the monthly payment on the construction loan.

Interest-Only Construction Loans are very different remodeling home loans than Fixed Rate construction loans and Adjustable Rate Mortgages. In Fixed Rate construction loans and Adjustable Rate Mortgages a person makes payments each month which are part interest and part principle on the actual value of the house.

An interest only loan requires a person to only pay the interest each month. The borrower is to pay the interest-only payments for a certain amount of time.

Interest-only remodeling home loans can make the monthly payment much less than a regular fixed rate or adjustable rate construction loan. Once that time is up the person can pay the remaining balance, refinance the mortgage loan, or start paying on the principal.

And another nice thing about interest only loans is that the borrower can pay against the principle whenever they would like to.

But BEWARE! These contributed greatly to the flood of foreclosures the banks now have. It's not always possible to handle the greater payments once the principle kicks in. And I'm not sure banks will even offer this type of loan any more.

Short-term Construction Loans are another option for people looking to get a loan to build their home. They can get a short term one year loan.

After the year is up, the person who gets this type of remodeling home loan is then required to refinance the loan to a regular type of mortgage loan. If a person does decide on this type of loan, they need to be aware that they will then have two sets of closing costs and they will have to re-qualify for the next loan when the house is built.

Instead of doing a short-term loan, many people opt for the all-in-one loan which will allow them to switch over from their construction loan to a permanent mortgage loan once the house is built. This type of loan only requires one set of fees and closing costs.

If you want more information, or have a question about remodeling home loans, contact me here.

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