Yahoo Finance I’m a Real Estate Agent: Here Are the 8 Best Ways To Fund Your Renovations During Retirement
You’ve decided you want to stay long-term in your current home, and perhaps even make it your “forever home.” But to make aging in place more comfortable, you want to renovate.
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How do you pay for them as a retiree?
The good news is that you have plenty of options, which is also the bad news. Consider the pros and cons of each option to fund home renovations in retirement.
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1. Grants & Specialty Loans for Seniors
The best way to pay for home renovations is, well, not to pay at all. Let someone else pay for it.
Rhett Stubbendeck, founder of financial planning firm Leverage, points out that you may have more options than you realize. “Check out government programs and grants. There are many available, especially for accessibility upgrades. At Leverage, we’ve helped clients secure these funds to reduce out-of-pocket costs.”
Don’t stop at federal programs, either. Many of the most generous programs operate at the state or local level.
In particular, many of these programs help cover the cost of age-related accessibility or energy efficiency upgrades. Get creative in combining these together.
If you can’t find a grant, you may find a subsidized loan program to help you score a low-interest, low-fee loan to cover the home improvement costs.
2. Cash
Could you pull together enough cash to cover most of the renovation costs?
Avoid taking on fresh debts in retirement if you can. Look under every proverbial cash cushion to see if you can cobble together the funds. “Paying in cash is the best choice if it doesn’t interfere with other financial goals or exceed your budget,” advises Michael Kotler, a Realtor in Hoboken, New Jersey,
If you can get most of the way there with cash, you may be able to close the gap with credit cards.
3. Credit Cards
It sounds unconventional, and it is. But paying for home upgrades by credit card can still potentially save you money over HELOCs, home equity loans, and refinancing (more on those shortly).
“When you borrow a home loan or home equity line of credit, it’s secured by a lien,” explains Luke Babich of Clever Real Estate. “That requires a title search and a formal loan settlement, which often add up to over a thousand dollars in fees. And that says nothing of lender fees, which rack up quickly.
“Sure, you’ll pay higher interest rates on credit card debt than a HELOC. But if you can pay off the card balances relatively quickly, the higher interest could still cost you far less than the thousands in settlement costs.”
Some credit cards offer introductory 0% APR periods as well, perhaps giving you up to 18 months to pay off the balance interest-free. Bear in mind that you can pay for materials yourself, directly on your credit card, and many contractors accept credit card payments if you pay a convenience fee.
4. Personal Loans
Another unconventional financing option includes personal loans.
Like credit cards, they charge higher interest than secured loans but let you avoid expensive settlement fees. “Personal loans are also an option, especially for smaller projects,” points out Stubbendeck. “They don’t use your home as collateral, making them simpler but typically with higher interest rates.”
5. HELOCs
A home equity line of credit or HELOC offers a flexible funding source. You can draw on it as needed, and pay it back at your own pace (at least until it rolls over to a fixed repayment term).
Real estate agent Michael Kotler explains further. “If you’re not sure what the total renovations costs will be, a HELOC, or home equity line of credit, may be the best choice, as it lets you withdraw funds as needed, and you can make minimum monthly payments on the amount you borrow.”
6. Home Equity Loans
Kotler continues: “Conversely, a home equity loan may be best if you know the exact cost of your project, as it provides a lump sum upfront.”
Home equity loans usually take the form of second mortgages if you already have a first mortgage against the property. Just beware that you do incur settlement fees, as outlined above.
7. Cash-Out Refinancing
“A third option using your home’s equity is a cash-out refinance, especially if the mortgage interest rate is lower than your current mortgage,” says Kotler.
“If you need a large loan and plan to stay in your home long term this may be for you. You take on a larger loan, pay off the existing mortgage, and get a new one which gives you cash to pay for the renovations.”
Expect higher lender fees however. Lender points equal one percent of the loan amount — a much higher figure when you refinance your entire mortgage.
Also beware that you extend your debt horizon many years into the future.
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8. Reverse Mortgages
If you plan to stay in the home forever, and don’t want the burden of a mortgage payment, you can borrow money with a reverse mortgage.
“For retirees over 62, a reverse mortgage can be a smart choice,” notes Stubbendeck. “It allows you to access your home equity without monthly repayments. This is perfect if you plan to stay in your home for a long time.”
Reverse mortgages come with their quirks, so make sure you understand the terms before signing on the dotted line. You could receive a lump sum upfront, ongoing monthly payments from the lender or a combination of the two. Get clear on when monthly payments will end and what you can otherwise expect — and what the lender expects from you.
Final Thoughts
Debt is a tool, and like any tool, you can use it to your advantage or cut yourself with it.
When in doubt, get help from a financial advisor. The last thing you want to do is saddle yourself with an expensive debt burden in retirement, no matter how nice that new kitchen might look.
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