A kitchen remodel is one of the most effective home improvement projects, with a return on investment of up to 77.6 percent, according to Remodeling Magazine's Cost vs. Value Report 2020. Remodeling your kitchen can boost the overall value of your home, and if you do it right, you'll feel happiness every time you walk into your kitchen for many years to come. Unfortunately, a kitchen remodel is also expensive, costing up to $68,000 for an upscale project. So what do you do if you don't have thousands of dollars lying around? Thankfully, there are various financing options available for your kitchen remodel.
Unsecured home improvement loan
This type of financing doesn't use your home as collateral, which means your lender faces a higher risk. As a result, an unsecured loan will typically be smaller than a secured loan, making it a good option only for a minor to mid-range kitchen remodel. There are various types of unsecured loans to choose from, and the best one for you will depend on your unique project. For example, if you don't plan to spend more than $10,000, a low to no interest credit card loan is a good option, as it's easy to get. If you'll be spending between $10,000 and $30,000, an unsecured personal loan is a good option, as you'll be able to get more than you would borrowing from a credit card and a longer repayment period. While getting an unsecured loan will be easier when you have a good credit score, it's not a must. You can still get home improvement loans with bad credit, particularly from online lenders. However, due to the higher risk involved, you can expect it to have a higher interest rate and shorter repayment period.
Secured home improvement loan
If you're planning on spending more than $30,000 and you've built up some equity in your home, a secured loan may be your best choice. The reason why you'd choose a secured loan over an unsecured one is that you'll get a higher amount at a significantly lower fixed interest rate, with a longer repayment period, and tax-deductible interest. However, there are a few downsides to a secured loan, with the main one being that if you fail to pay, you risk losing your home. You'll also have to jump through more hoops during the application process. You have three main types of secured loans to choose from. The first one is cash-out refinancing, where you replace your existing mortgage with a new one for more than the outstanding loan balance, and use the balance between the two mortgages for your project. Another option is a home equity loan or home equity line of credit (HELOC), where you use your home equity as collateral for a new loan.
There's no one-size-fits-all answer to which loan type is best for funding your kitchen remodel. The best option for you will depend on various factors, including the cost of the project, the amount of equity you have in your home, your desired repayment period, and whether or not you're willing to risk your home.
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