Kitchen counter-tops, appliances and cabinets don’t come cheap. And many remodelers don’t realize how pricey their project can get until it’s far too late. Before calling a contractor, determine how you’ll pay for your kitchen remodel. Common options include:
- Home equity financing
- Credit cards
- Personal loans
A recent survey found that 75% of homeowners do not have enough ready cash to pay for home improvements outright. If you’re one of them, you may be financing at least some of the cost of your kitchen remodel. The best option depends on the size of your dreams and the amount of your resources.
Budget realistically for kitchen renovations
How much might you pay to renovate your kitchen? According to Remodeling Magazine’s 2019 Cost vs. Value report, a mid-range major kitchen remodel set homeowners back an average of $66,196 this year. A minor kitchen remodel — one in which you don’t replace everything — still cost $22,507.
Before embarking on your project, find out how much you qualify to borrow, and what your interest rate and payments might be. Having a beautiful and functional kitchen is great, but not if the cost gives you heartburn.
Home equity loans for kitchen remodeling
Home equity financing generally offers the lowest interest rates and payments. However, that doesn’t always mean the lowest cost. That’s because fixed-rate home equity loans come with lender, title and escrow charges. There may be an appraisal, too.
Home Equity Lines of Credit, or HELOCs, feature lower setup costs, but they also have variable interest rates. Over an extended repayment, your interest rate could get uncomfortably high. Other issues with home equity loans for a kitchen remodel include:
- You need significant equity to qualify — most lenders loan up to 80% or 90% of your property value
- If fixing up a rental or vacation home, it can be harder to get loan approval
- You can lose your home to foreclosure if you don’t repay a home equity loan
In general, home equity financing works best if the amount involved is large, you have enough home equity to qualify for financing, and you are confident about being able to afford the payments.
Credit cards for kitchen remodeling
Another option for funding a kitchen renovation is using a credit card. Credit cards are fast and convenient. And if you can find a card with a 0% introductory rate, or rewards, it can be smart to put your remodeling costs on a credit card, at least to begin with.
But credit card interest rates are high compared to personal loans and home equity financing. They can double the cost of your renovation if you’re not careful. Unless you’re just financing a few hundred dollars, plastic is not ideal.
One option is to use a credit card for convenience (or to get rewards or a low introductory rate). Then pay it off with a personal loan. That way, you minimize your interest expense, while locking in a fixed rate and payment.
Personal loan to pay for a kitchen remodel
There are other ways to borrow money for a kitchen remodel, but a personal loan for home improvements makes sense for several reasons:
- Interest rates and payments are usually fixed and budgeting is easier
- Terms are short enough to keep interest expense reasonable
- Personal loans are unsecured and don’t risk your house
- Interest rates are about 7% lower on average than credit card rates
Many consumers prefer a personal loan because they offer a predictable and affordable way to borrow money — particularly for those with good credit. They are especially sensible for mid-range kitchen renovation projects.
Paying for home improvement projects
While home equity products are popular for consumers who want to remodel a kitchen or take on any number of home improvement projects, personal loans clearly have their place.