That home-remodeling project may give you all the extra space you need. But how will you pay for it?
A survey conducted in February by San Diego-based LightStream, a national online consumer lender, found that 73% of high-income homeowners, defined as those with household incomes of more than $100,000, plan to use savings to pay for home-improvement projects, while 32% will use credit cards. The balance will secure a home-improvement loan. Many people tap more than one method to pay. But the best way to pay?
“If you have the cash, you should consider paying cash,” said Michael Silver, a certified financial planner in Boca Raton, Fla. “Although you can borrow money at very low interest rates, the amount you’re paying to a bank to borrow money is still greater than the bank is crediting you interest on your cash.”
Remember, however, that there is an opportunity cost to using savings to pay for home improvements. “If you can earn more than the interest you’d pay to borrow, then you should keep that money invested and finance the project,” Mr. Silver said.
Finance professionals recommend that homeowners avoid charging project costs on credit cards unless they plan to pay the bill in full when it arrives. Using a card to get airline miles or other awards is great, but credit cards carry high interest rates, so avoid carrying a balance.