One of the best ways to add value to your home-and enhance the quality of life inside-is through a home improvement project aimed at sprucing it up or adding amenities. Some of the most popular upgrades also return the highest dollar-for-dollar return on your investment. Remodeling a kitchen, adding a bathroom, or replacing an aging roof, can add equity now, and market value later, if you decide to rent or sell your property. Financing options are numerous, and lenders offer a variety of payment options, rates, and terms.

Here are three simple ways to finance home improvements:

Home improvement mortgage refinance

Many homeowners are refinancing to lock in attractive long term fixed interest rates, and using the extra money to pay for remodeling projects. With this type of home improvement loan, you can schedule repayment for 20 or 30 years into the future, and interest is tax deductible. But you'll be repaying the money slowly, and the accumulated interest can be significant.

Home Equity Loans

Borrowing against the value of your home is one of the smartest ways to finance home improvements. This technique leverages the existing value of your home to generate even more cash, and provides self-perpetuating equity. Home equity loans can be either a fixed-rate loan, or a revolving line of credit (HELOC). If you default on your payment, you run the risk of losing your home, so pay these loans back in a responsible manner.

Bank Loans

Ordinary consumer bank loans are handy as home improvement loans, especially for those who need to borrow relatively small amounts of money without much paperwork or delay. But interest rates are sometimes less competitive, and loans usually need to be paid back within a few years, rather than a few decades.

Be sure to borrow enough money to cover unexpected expenses that might inflate your budget along the way, and choose the financial options that suit your budget and timeline best. Look for monthly payments that are manageable, and an interest rate and schedule of repayment that meets both your short and long term goals.

Published on October 8, 2006