If you own an older home, you can probably relate to the words of Queenie in Jerome Kern's musical Show Boat: "The chimney's smokin', the roof is leakin' in." There's no doubt that a home in disrepair takes a toll on your nerves and your bank account. If you're short on funds, a mortgage refinance might help you fix those leaks and cracks before things get worse.
Basics of refinancing
A mortgage refinance can be an economical way to free up the money you need for home improvement. Compared to other types of borrowing, first mortgages carry relatively low interest rates. Refinances are also relatively easy to get, depending on how much money you need and the quality of your credit history.
The process works like this: You'd take out a new, larger loan, and pay off your existing mortgage. The funds left over after the payoff are yours to use as you wish. The amount of money available to you depends on:
- The value of your home
- The balance of your existing mortgage
- What size monthly payment you can afford
To demonstrate, let's assume your home is worth $500,000, and the balance of your existing mortgage is $250,000. Lenders typically offer the best rates for mortgages that do not exceed 80 percent of the home's value. This limits available funds to $400,000 in the example that we're using. After subtracting the old loan balance of $250,000, you're left with $150,000. If you can afford the monthly payment on a $400,000 loan, you would have roughly $150,000 to spend on home improvement.
Where to begin
If you don't know the value of your home, find out. You can obtain a free market valuation online or from a local realtor. The lender will require a written appraisal later in the process, but knowing the numbers early can help you budget and prioritize your improvement projects. Remember to account for closing costs and set aside a little for unexpected expenses. You can then start shopping around for the best rate on your new loan. At the very least, check with your existing lender, your banker, and online lending sites.
There are a few benefits to funding home improvement projects with a refinance. For one, the larger loan amount will provide you with a bigger tax deduction. You'll also be increasing the value of your home, which, in turn, increases your equity. Lastly, eliminating nagging problems around the house will probably lower your stress level and improve your quality of life. And that just may inspire you to sing a few bars of your own.
http://www.mortgageloan.com/refinance-help-for-an-aging-house
