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The final weeks of the calendar year offer opportunities to reevaluate what has worked over the prior 12 months – and what hasn’t. This is a particularly important time to review your financial health, both for ways to resolve missteps and to boost your finances. With inflation rising again and higher interest rates making the cost of borrowing more expensive than it had been a few years ago, these considerations take on even more importance now.
For homeowners not eager to give up their existing, low mortgage rate to buy a new home, it may make sense to instead improve their current one. Paying for these home projects, however, is not as appealing right now with a mortgage refinance, thanks to the elevated mortgage rate climate. Fortunately, there are alternative ways to pay for 2025 home projects without refinancing. Below, we’ll break down three cost-effective options worth exploring now.
Start by seeing how much money you could borrow with a home equity loan here.
How to pay for 2025 home projects without refinancing
Here are three smart ways to finance home projects without refinancing or forgoing your existing mortgage rate to explore for the new year:
Home equity loans
Home equity loans allow homeowners to access their existing home equity in a lump sum form. Qualified borrowers can secure an interest rate close to 8% right now, which can be refinanced in the future should rates fall significantly lower. And if you use your home equity for IRS-eligible home repairs and renovations, the interest paid on the loan may qualify to be deducted from your taxes when you file a return for the year in which the funds were used. Still, using home equity isn’t totally risk-free, so you’ll want to crunch the numbers to ensure that you can repay all that you deducted or you could risk your homeownership in the exchange.
Get started with a home equity loan online now.
HELOCs
A home equity line of credit (HELOC) functions similarly to a home equity loan in that it also has an interest rate in the 8% range and has appealing tax advantages if used for qualifying purposes. Right now, however, it has some unique benefits that some borrowers may find more attractive than a home equity loan. HELOCs have variable interest rates that are likely to continue to decline in 2025 as they have for most of 2024. And borrowers will only pay that interest on any money utilized – not the full line of credit approved for. That’s a distinct advantage for homeowners unsure of what their home projects will ultimately cost. Still, they come with the same risks that home equity loans do, so borrowers will need to take a delicate approach to this individual borrowing option.
Reverse mortgages
Reverse mortgages are only available for homeowners age 62 and older (with rare exceptions). But for those who qualify, this can be a smart way to tap into your home equity. Not only will it not require you to exchange your mortgage interest rate as you would with a refinance or cash-out refinance but you also won’t have to worry about making monthly payments. That’s because reverse mortgages do exactly what the name implies – they make payments in reverse to you, the homeowner. You’ll only need to repay the funds if you die or if you sell the home. For many older homeowners, then, this could be the best way to pay for 2025 home projects.
Learn more about your reverse mortgage options here.
The bottom line
Home equity loans, HELOCs and reverse mortgages can all be cost-effective ways to finance home repairs next year without having to forego your current, low mortgage rate. Utilizing your home as a funding source, however, comes with both unique benefits and risks, both of which need to be carefully considered against each other to ensure financial success in 2025 and the years that follow.
