PROJECT FINANCING OPTIONS FOR CLIENTS

Along with providing you several options for the design and construction of your project, we also have options for financing your project. Below, we have listed some typical financial options for you to consider.

SECOND MORTGAGE

This is a loan against the equity in your home. It is, in essence, an additional mortgage that will usually incur new payments in addition to the existing mortgage payments. Typically, financial institutions will let you borrow up to 80% of the appraised value of your home, minus the balance on your original mortgage. You may also incur all the fees normally associated with a mortgage - closing costs, title insurance and processing fees. Talk to your tax advisor about whether the interest on a second mortgage may be tax-deductible.

HOME EQUITY LINE OF CREDIT

Like a second mortgage, a home equity loan lets you tap up to about 80% of the appraised value of your home, minus your current mortgage balance, and will usually incur new payments in addition to existing mortgage payments.  Since it's set up as a line of credit, you won't be charged interest until you make a withdrawal, but you will have to pay closing costs. You can make withdrawals gradually as you start paying contractors and suppliers. The interest rate charged is usually variable and may be based on the outstanding balance. Make sure you understand the terms of the loan. The interest on home equity loans may be deductible; talk to your tax advisor.

REFINANCING

This involves paying off your old loan and taking out a new mortgage on your home. To refinance, generally you'll need to have equity in your home, a solid credit rating and a steady income. You'll incur all the closing costs that go along with getting a new mortgage, so unless you're doing extensive remodeling and can get a mortgage interest rate at least two points less than you're currently paying, this type of loan may not be for you. An existing mortgage payment will be adjusted based on amount financed and new interest rate, leaving you with one monthly payment.

UNSECURED LOAN

Although the interest rates charged are often higher and you generally will not be able to get a tax deduction for the interest paid, the costs of obtaining an unsecured loan are usually lower. The relative ease of obtaining this type of loan makes it popular for small projects costing $10,000 or less. The lender will evaluate your application based on credit history and income.

ISSUES TO CONSIDER:

Interest rates
Closing costs
Length of loan
Prepayment penalties
Hidden fees?