Ask Terry Questions Best way to finance a large home improvment project

Best way to finance a large home improvment project

By Terry Savage on October 09, 2023 | Housing / Real Estate

Hello! We are looking at adding a 3 season room on to our home. We have wanted to do this project for a long time. This project is estimated to cost us about $60,000. We have excellent credit, an annual income of about $200,000, approximately $100,000 equity in our home, and our only debt is our mortgage and a vehicle that is nearly paid off.

We are having difficulty in deciding which type of loan would be best for this project. HELOC? Unsecured home loan? We do intend to pay this loan off early but still expect to pay on it for at least 5 years. Interest rates are also awful right now so we are wondering if it would be better to wait until they come down or refinance the loan when they do drop. Any guidance as to how to best navigate this?

Terry Says

Eeek! This is a tough one to answer.
First, I think the project might cost less in a recession, when companies are looking for work! (My guess is that could happen in the next year or so!) So maybe postponement would have an advantage! But I truly understand the desire to do it now.

So, don’t touch your original mortgage, as I’m assuming it’s at a much lower rate.
Your choices are a home equity loan or a line of credit (HELOC), which you would draw down as needed to pay for the project.
I think rates might move a big higher, but no one knows for sure. If you lock in a rate, you could always refi the loan, if you haven’t paid it down by that time.

But beware of “interest-only” loans, where you have a balloon payment at the end. If a recession does come, and you lose some income, you don’t want to be at the mercy of the lender in extending the loan when you don’t have today’s income to qualify!



a personal
finance question