This Spring, Make Sure Your Home Improvements Match Your Financial Status

NEW YORK, NY, May 05, 2011

Spring has sprung, and as usual, the warm weather has home owners looking to begin improvements around the house.

According to Ben Woolsey, Director of Marketing and Consumer Research for CreditCards.com, it's important to match the size and scope of the project to the right sources of financing, in order to get the most bang for your buck.

"Some lenders will give a better rate for short-term loans - perfect for smaller projects," says Woolsey. "For larger or long-term ventures, you may be better off with a fixed-rate or different terms."

Other considerations include how much equity you have in your house. This is going to determine if you can borrow against your house at a reasonable price.

Below are some alternatives for financing a remodeling or renovation projects, with pros and cons from the experts at CreditCards.com:

• Cash: Cash is the low-cost, low-stress alternative with no debt, no payments and no fees, contracts or interest rates. However, the question you have to ask yourself is whether or not there's a better use for this money right now.

• Credit cards: You don't have to worry about closing costs, origination fees, home appraisals or any number of hang-ups and fees associated with home loans. But be careful of the pitfalls you can face by reaching for the plastic. If you miss a few payments, penalty rates are running about 30%. You also can't write off the interest. And those APRs are about twice the going rate you see on any type of home loan. Also, watch out when increasing your debt load, as it could lower your credit score or jeopardize your existing credit limits. Because of this, cards are usually better suited for smaller projects or those done little by little.

• Store credit cards: Big box home improvement retailers like Lowe's and Home Depot offer promotional financing with no-interest periods of 6-18 months through their private label store cards. Home improvement items such as construction and remodeling material, appliances and appliances, along with participating contractors' fees, can be financed over time with these accounts. Long term interest rates can be higher than traditional credit cards, however. As with general-use credit cards, beware that the credit lines may not be sufficient to cover a major remodeling project and also make sense for smaller projects or those done over time.

• FHA Home Improvement Loans: Qualifying homeowners can borrow up to $25,000 for home improvement at affordable rates without having to have home equity in a program guaranteed by the Federal Housing Authority (FHA). Loans are provided by local lenders that participate in the program.

• Home equity loans and lines of credit: Also known as a "second mortgage," fixed-term loans usually have a fixed rate. A fixed-rate home equity loan typically has terms that run from 10 to 15 years, with rates that average about a point above a regular mortgage. Home equity lines of credit (HELOCS) are typically variable rate and only charge interest once the line is accessed Like their fixed-rate cousins, you arrange to borrow a set amount up front but instead of getting all the loan proceeds at once you only take it as you need it.

If you're considering an adjustable rate HELOC, make sure that you can handle any payment increases that may come your way should the prime rate be increased by the Federal Reserve (and since it has been at historic lows it only has one way to go, and that's up).

• Personal loans from a bank or credit union: Also known as consumer or lifestyle loans, the proceeds of these unsecured loans can be used for anything, including home improvements. Rates can be a little lower or higher than those on credit cards.

To arrange an interview with Woolsey, please contact Christie Hgh at 212.871.3020, ext. 114, chigh@jgordonassociates.com.

About Ben Woolsey/CreditCards.com:

Ben Woolsey is Director of Marketing and Consumer Research for CreditCards.com and offers a perspective gained from a 20-year financial services career. Woolsey has been involved in the design of rewards programs and marketing both consumer and business credit cards for several of the nation's largest issuers.

About CreditCards.com:
CreditCards.com, recently named a "Best Site for Managing Your Credit" by MSN Money, is a leading online credit card marketplace, bringing consumers and credit card issuers together. At its free Web site, consumers can compare hundreds of credit card offers from America's leading issuers and banks and apply securely, online. CreditCards.com is also a destination site for consumers wanting to learn more about credit cards. Offering advice, news, features, statistics and tools, CreditCards.com helps consumers make smart choices about credit cards. In 2009, more than 12 million unique visitors used CreditCards.com to find the right credit card to suit their needs.