Adding home renovations to your mortgage may help you save money on your loan.
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What types of home renovations can you add to your mortgage?
So you’re thinking about renovating your home – congratulations! There are many ways to make your dream a reality, and adding home renovations to your mortgage can be one of the most beneficial decisions you’ll ever make.
Before we get into the nitty gritty, it’s important to understand that adding renovations to your mortgage does not mean that you will have to pay more money in interest. In fact, depending on the type of renovation being undertaken, you may actually save money on interest payments over time.
Renovations for energy efficiency: Adding insulation, upgrading windows and doors, and installing solar panels can all reduce your monthly utility bills by hundreds or even thousands of dollars. Not only will this save you money on your monthly payments, but it also can add up over time – which is especially important if you’re paying interest on your mortgage.
Renovations for aesthetic appeal: Whether you’re looking to update your kitchen with new appliances or paint the entire exterior of your home a new color, adding renovations of this nature to your mortgage can significantly increase the value of your home.
How do you finance home renovations through a mortgage?
There are several common mortgage products that can be used for home renovation projects: fixed-rate mortgages, adjustable-rate mortgages (ARMs), and hybrid adjustable-rate mortgages (HARMs).
Fixed-rate mortgages are typically the most affordable option, but they have higher interest rates than ARMs and HARMs. Adjustable-rate mortgages allow borrowers to lock in a rate for a set period of time, but they may have higher interest rates than fixed-rate mortgages when the interest rate is adjusted. Hybrid ARMs combine features of both fixed-rate and adjustable-rate mortgages, offering some degree of stability and affordability.
Once you’ve determined which type of mortgage would be best for your home renovation project, it’s important to consider your financial needs and goals. You should also take into account your credit score, down payment size, and other factors. Once you’ve completed these calculations, it’s time to compare the different lenders’ offers.
Once you’ve selected a lender and finalized your mortgage agreement, you’ll need to begin preparations for your home renovation project.
What are the benefits of adding home renovations to your mortgage?
Increased Value
The biggest benefit of adding home renovations to your mortgage is that they can increase the value of your home. This is especially true if you make significant upgrades, like upgrading the roof, windows, or exterior walls.
By doing this, you may be able to qualify for a higher loan amount and save money on interest over time.
Reduced Repayment Time
Another benefit of adding home renovations to your mortgage is that it can shorten the repayment time. For example, if you have a 20-year mortgage with an initial interest rate of 5%, upgrading your roof might shorten your repayment term by two years, resulting in a lower monthly payment.
Reduced Mortgage Payments
Home renovations also can result in reduced monthly mortgage payments. This is because the added value of your home will reduce the amount you need to borrow and the interest rate you pay.
In some cases, this could result in a savings of up to thousands of dollars over the life of your loan.
Tax Benefits
Adding home renovations to your mortgage can also provide tax benefits.
Are there any risks associated with adding home renovations to your mortgage?
If you make any major repairs or additions to your home that increase its value, the amount you can borrow may be limited by your mortgage lender. If you don’t have enough money saved up to cover your total mortgage debt and home renovation costs, you may be forced to sell your home prematurely or take on more debt to cover the costs.
If there are any delays or problems with the renovations themselves, they could add significantly to your cost and timeline.
It’s important to weigh the risks and benefits of adding home renovations to your mortgage before making a decision. If you have questions about whether this is a good idea for you, contact a qualified lender or financial advisor.