Do you have some major renovations in mind, but don't know how to scrape together enough cash to make them happen? That deck won't be cheap, and real wood floors are expensive. And we aren't even talking about the kitchen yet. But there's hope. The solution to your cash flow problem is right at home-the equity you've built up in your own house. Home equity loans used as home improvement loans come with low rates, comfortable repayment schedules, and special tax advantages.

Upgrade with cash-out refinancing

You can unlock that equity in several ways. A cash-out refinancing is a popular option, where you replace your old mortgage loan with a new, higher-balance one. It's a sensible choice if your existing loan carries a high interest rate, or you already have a second mortgage. It's a flexible option that gives you access to the whole range of mortgage loan products on the market-fixed or variable rates, interest-only loans, or even exotic hybrid loans.

Second mortgage may be key

A second mortgage is often the better key to unlock your cash in this rising interest rate environment. Keep the great rate of your first mortgage, and add a second loan secured by your property. These mortgages may have higher home equity loan rates than a first mortgage, but generally carry low or no closing costs. They come in two flavors: a home equity loan, which gives you the cash now with a fixed interest rate; and a home equity line of credit (HELOC) that lets you withdraw money as needed against a large credit line with variable interest. The former makes sense for major renovation projects, while the latter is good if you have a longer-term project in mind. Both carry the same tax advantages, and often have very long repayment schedules that make the monthly payments easy to handle.

You still need to estimate your costs before you start to make sure that you can afford the repayments every month. But the financial backing of the home equity you built up over the years will let you complete more and bigger projects around the house than any other financing option.

Your house can be the dream house you always wanted, thanks to the value locked inside.

    Published on January 4, 2007