When financing a remodeling project, consumers have many sources. Most banks and other financial institutions offer home equity loans or lines of credit, which are popular financing methods because they typically carry lower interest rates than do credit cards.
As the names imply, the loans allow you to borrow against the equity in your house. Rates for home equity loans and lines of credit vary, but range from a quarter percentage point to a a full point above the prime rate. A credit line differs from a loan in that it allows you to keep borrowing up to your limit as you pay off debt. A loan requires monthly payments.
For remodeling projects over $50,000, banks often issue a construction loan, which brings in a title company and the lender to oversee when funds are paid out.
“For each draw request from the builder we have an inspector go out to make sure the work has been completed,” said Sue Brown, a construction loan manager at First Chicago NBD Corp.
While many home improvement store credit cards carry interest rates from 18 to 21 percent, they can be a good option for those who plan to pay off the debt quickly. Many store cards offer promotional “no-interest” loan rates if the balance is paid during a certain time period, ranging from 3 to 12 months.
