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How To Pay For Home Improvements

Not too long ago, my wife and I were in the process of window shopping as our home was in dire need of window replacement.

We received quite a few estimates and ultimately made our selection. Right now we are in the midst of the installation with a little more than half of the windows installed.

While we had saved the money for the cost of the replacement windows, we have been thinking about a few additional home improvements that have yet to be saved for in advance. As such, we have been discussing a few different alternatives as to how we should pay for these home improvements.

There have been three methods that we have discussed thus far – wait and save for the improvements, use a HELOC to cover the cost of improvements or use a 0% balance transfer offer to pay for the improvements and put a little extra in savings.

Saving For Improvements
As we did with the windows, we can hold off on any additional home improvements until we have saved the funds to cover the entire cost in advance. The key advantage with this approach is that we maintain our preference to avoid any form of consumer debt and owe nothing once the improvements are completed.

On the down side to this approach, we will have to delay the improvements until we have all of the funds set aside for each job. With all of the windows being replaced right now, it would be awfully convenient to get the remaining improvements hammered out at the same time and be done with everything at once.

Use a HELOC
As I mentioned above, my wife and I have been adamant about not paying any interest ever since we eliminated all of our non-mortgage debt. Right now we do have a small amount of non-mortgage debt but that is a 0% balance transfer from American Express that is sitting in our HSBCdirect account.

We do have a considerable amount of equity in our home so this is a feasible option. However, I recently reviewed the rates listed at BankRate.com and saw that most of the HELOC offerings were in the 7-8% range. As nice as it would be to leverage the equity in our home to cover the cost of home improvements, I just don’t like the idea of paying interest.

You are able to deduct the interest paid on a home equity loan but I am still not sold on the idea.

Balance Transfer
The third option that we have discussed is to take advantage of a 0% balance transfer offer that we have right now. The offer does not have any associated fees and the rate is good until October of 2008.

With this option, we would have the money deposited into our checking account and pay for the desired improvements. Any remaining funds would be deposited into our HSBC account to sit and earn a little bit of interest. We would then pay the minimum amount due each month and direct additional funds into our savings so that the balance could be paid off completely when the teaser rate expires.

This method also involves a new debt but since we will have covered the cost of the home improvements by the time the teaser rate expires, I am more open to this than the HELOC.

The Home Improvements
The home improvements that we have been discussing include new blinds and window treatments throughout the house to be coupled with the new windows. In addition, we would like to paint the entire interior of the home, replace the carpeting in two rooms on the main floor that have carpeting and the entire upstairs as well as buy new furniture for the kitchen, dining room and family room.

Based on our initial estimates, we would be able to save the funds to cover the costs of these improvements by the end of March next year. However, as I mentioned earlier it would be much more convenient to schedule these improvements now while the windows are being replaced.

As we continue to discuss the best alternative for us, I thought I would request feedback from all of you. Which option would you select if you were in our shoes?

Would you delay the home improvements until next year when you have all of the funds saved? Or would you complete the improvements now and leverage your home equity or take advantage of the balance transfer?

8 Responses to How To Pay For Home Improvements

  1. MNC,

    This is how I would personally do it. If the project is for a necessity, I would borrow. Examples would a furnace or AC repair or replacment, or a leaking roof. For discretionary items I would wait until I saved enough. Example, new furnishings.

    For reference, I am a big fan of “no debt.” So take may approach with a grain of salt 🙂

    • Thanks for your feedback. I’d have to say that none of these projects are a necessity so I know what you mean about waiting.

      Right now I have essentially eliminated any option that would require me to pay even one penny of interest.

  2. It would make more sense to use the home equity to expand the house since more square footage tends to mean a higher selling price, but since the changes are mostly cosmetic, I would wait until we had saved the money.

    My wife would hear “new furniture” and we’d go $1000 in debt, rather I say “new furniture fund” and she’ll start saving some cash.

    • Yeah, I’ve had similar feelings about using home equity. I would be more open to a HELOC for something like finishing the basement but it just doesn’t seem like a fit for these other improvements.

  3. on the right would it be possible to change to my new domain, http://www.financingyourfamily.com?

  4. Thank you!

  5. I don’t like debts too, but sometimes it could hurt, and we need changes on home.

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