John Holt, President/CEO & Contributing Writer,
Nutmeg State Financial Credit Union
This is the time of year that many Connecticut homeowners start dreaming of gleaming granite, custom cabinets or a beautiful bathroom. But before nailing down a new remodeling project, the loan specialists at Nutmeg State Financial Credit Union caution homeowners that their financing plans may need a redesign.
“Rising interest rates have made many homeowners reluctant to lose their low mortgage rates by selling and purchasing a new house, so they are spending big on home improvements,” explained John Holt, President & CEO of Nutmeg State. “However, they should keep in mind those higher interest rates will increase their cost of borrowing.”
Holt notes that the Federal Reserve raised its key short-term interest rate on March 21st and forecasts a total of three hikes this year. This will have a big impact on homeowners with adjustable-rate mortgages or home equity lines of credit that are nearing the end of their draw period when payments switch from being interest-only to including principal as well.
In addition to home loans, the amount that consumers pay to finance other debt like credit cards and car loans will rise. This means borrowers need to review all of their financial obligations.
“There are many ways to finance home repairs and our knowledgeable staff is an excellent resource to answer any questions,” suggested Holt. “The best method to finance all depends on how much you want to spend and how long you want to take to pay it off.”
Holt shares the most common types of loans:
HOME EQUITY LOANS– Home equity financing is best when making a larger home repair or improvement, like adding a deck or a pool. The interest on these loans typically has lots of tax benefits, but recent tax changes may have an impact.
HELOC (HOME EQUITY LINE OF CREDIT) – The tax benefits for home equity lines of credit have changed recently, but for many people, this borrowing option is still best because of the flexibility of its use. Homeowners can borrow and pay it down as they go, versus a loan which is one lump sum.
SMART-E LOANS – If a home improvement is related to improving the home’s energy efficiency, there’s excellent borrowing options. Some examples include oil-to-gas conversions, new windows, insulation, and new heating and cooling. These all qualify for special low interest-loans through the Smart-e program. The low interest is made possible because the government helps offset some of the costs.
HOME REFINACING – Another borrowing option that works for many people is refinancing the home. Depending on how much of the first mortgage is paid down, owners can refinance their mortgage and take advantage of a “cash out” option. This means there is still only one mortgage loan, but some of it can be used for home improvements or repairs.
CREDIT CARDS – Borrowing using a credit card is also the most practical option for many people. There are lots of smaller expenses that come up all year for homeowners. Credit Cards can be a great option, but be sure to use them wisely! Look for cards that have benefits like rewards or lower fees and take advantage of special promotions.
Holt wants to remind everyone that rising interest rates are actually good news for savers who may finally see interest on deposits increase. He notes savers are more likely to get a higher return at a credit union. Since a credit union is a member owned, not-for-profit, financial institution, they are able to return profits to their members in the form of excellent rates, programs and services.
“With so many factors impacting loans this year, I strongly encourage everyone to compare all of their financing options with us then consult with their tax professionals to make sure they choose the best one for their situation,” concludes Holt.
For more information you can contact Nutmeg at www.nutmegstatefcu.org for more information.