Most of us have spent a lot more time inside our homes than we wanted to this past year. For many, that’s led to the desire to make improvements. It’s no wonder: all that time inside made us more aware of areas lacking functionality or showing more wear and tear. Remodeling projects require a lot of decisions. But your first decision—before diving into materials, colors, and finishes—is how to pay for your remodel. Here are seven options to consider.


Home Improvement Payment Option 1: Home Equity Loan

You can borrow against the equity you’ve built up in your home to fund home improvement projects. Unlike a cash-out refinance, this loan doesn’t pay off your existing mortgage, only provides you with extra cash to pay for updates. If you have plenty of home equity and need funds for one big project, this option might be worth your consideration. And bonus: home equity loans can sometimes be tax deductible. The drawback here is that this type of loan is secured, meaning it’s tied to collateral, your home, in most cases. So if you’re unable to make the payments, the bank can take ownership of your home.


Home Improvement Payment Option 2: Home Equity Line of Credit (HELOC)

Similar to a home equity loan but more like a credit card, a HELOC allows you to borrow from a pre-approved limit. Once it’s paid off, you can borrow again. And while the interest rates on a HELOC can rise and fall over the term of the loan, you only pay interest on the amount you borrow, not your spending limit. HELOC closing costs are very low (and sometimes zero), which makes this option worth considering if you have smaller, ongoing projects to pay for. The same drawback applies to this type of loan: it’s secured by your home, so there is some risk for you as a homeowner.


Home Improvement Payment Option 3: Cash-Out Refinancing

When you refinance to a new mortgage loan with a larger balance than what you owe, you can pay off your existing mortgage and keep the remaining cash. That extra money comes from equity in your home, and you can use it to fund home improvements (though you don’t have to use it for this). Keep in mind that your closing costs will apply to the entire loan amount, so the new interest rate will need to be much lower than your current rate to make sense financially. Because you’ll be using your home as collateral, and financing short-term costs with long-term debt, you should only consider this option if the home improvements you’re financing will increase the value of your home.


Home Improvement Payment Option 4: Credit Card

If you have a credit card that offers rewards, you might want to consider using it to fund your home improvements. Just remember that credit cards typically come with higher interest rates than loans, so it’s in your best interest to pay them off quickly. If you’re not sure you can, this is probably not worth considering as a means of paying for home improvements.


Home Improvement Payment Option 5: Personal Loan

A personal loan may not require you to put up any collateral, but you’ll likely need good or excellent credit to qualify for the best interest rates. Rates on personal loans tend to be higher than those on home equity loans, and your payments will be higher, but you’ll pay off the loan faster. If you don’t have  much equity in your home, or you want a shorter repayment period, you may want to consider a personal loan.


Home Improvement Payment Option 6: Contractor-Offered Financing

This type of loan is unsecured, meaning it’s not tied to any collateral, like your house. That’s because the financial institution—not you—takes on the risk for this type of loan. These loans generally offer much lower interest rates than other options, and in many cases will offer a same-as-cash benefit (no payment and no interest for up to 24 months). That allows you to keep your cash in an interest-bearing account rather than using your savings. You also will likely have the option to pay off the loan early without incurring fees. So if you know you’ll be getting a bonus in a few months, for example, you can borrow now to start your project, and pay it off when that money comes in. These loans are also fast and easy to apply for—no fees, no closing costs—and you’ll know whether you’re approved within seconds. You can also be pre-approved for a maximum limit, so if your contractor discovers hidden damage, for example, or you change your mind about the type of fixtures you want in your new bathroom, you can approve a larger loan amount. High approval rates mean 80% of those who apply are approved. If a low-risk loan with the benefits of cash and low interest rates appeals to you, contractor-offered financing is likely an ideal option.


Home Improvement Payment Option 7: Cash

It takes a lot of discipline, but saving up and paying for home improvements with cash won’t cost you any fees or interest. And it’s a great way to stay within your budget. While it’s a smart option, many homeowners prefer to keep their savings intact in the event of an emergency, and removing money from a savings account means losing the extra money an interest-bearing account earns. If a cash option appeals to you, it may be worth considering contractor-offered financing, which can offer the same benefits as cash.


Financing a home improvement can be a smart option, in fact, 50% of home improvement projects over $5,000 are financed in some way. If you’ve been dreaming of a bathroom remodel, Re-Bath can help you turn your dreams into reality. Contact your local Re-Bath to learn about our financing options and schedule your free in-home design consultation today.