I’m sure your kitchen is an important part of your home for many reasons.

Generally speaking, that’s the case for most of us. Not only does it fill a gigantic role in our lives with food, it can be a “make-or-break” deal when it comes to the purchase of a new house. After all, don’t we all NEED a kitchen that is equipped to deal with our needs and style sensibilities?

Now, if you have bought a new house or find that your kitchen needs repairs, looks worn out or needs new equipment — it’s time to consider a remodel. But brace yourself because remodeling your kitchen is not going to be cheap. It requires an enormous amount of emotional and financial commitment.

In fact, according to HomeAdvisor, the average cost to remodel a kitchen is more than $20,000!

That’s definitely not something not everyone has lying around. And one may even wonder, “Why even remodel it then?”

But here’s where stats save the day: It is important to perceive kitchen remodeling as an investment for both your lifestyle and the general resale value of the house. It will bring you a lot of comforts while paying off for itself in terms of ROI as well.

Here’s something reassuring if you don’t have the money for it stashed away somewhere in the house: There are many ways to finance a kitchen remodel. And some of them are ridiculously easy and quick too.

When it comes to financing a kitchen remodel, there are two main financing options:

 

Unsecured Financing

The options under unsecured financing do not require collateral, which in this case is your house. Unsecured financing is generally easier to obtain and doesn’t emphasize too much on your credit score. But the two different types of unsecured financing also depend on your budget and approval of credit.

 

1. Credit Card

There are plenty of low-interest credit card options for those with a decent credit score. A low-end kitchen remodel can cost around $10,000 — which is the average approval limit when it comes to unsecured credit. This amount generally translates to repairs, new counters and small furnishings in your kitchen.

There’s a catch, though. The drawback of a low-interest credit card financing is that you don’t get a lot of time to pay it back. The general payback period is around 18 months at a low-interest rate with a caveat that you don’t miss the repayment schedule. If you do, it results in a higher interest rate and defeats the purpose of obtaining a low-interest financing option for your kitchen remodel in the first place.

 

2. Personal Loan

A personal loan is a great way to finance your kitchen remodel. It is almost entirely dependent on your credit history and since its an unsecured loan, it doesn’t require collateral. After approval, you get your funds almost immediately and there are no hurdles in remodeling your kitchen right away.

But here’s something you need to know: When getting a personal loan, the interest rate is dependent on your credit score. Higher the credit score, lower the interest. Compared to the credit card though, even if you have an average credit score, the payment period is relatively longer. This makes payments easier as the monthly payments are often manageable, even with a higher remodeling budget.

Secured Financing

 

Secured financing is leveraging the equity in your home to get the money required to remodel your kitchen. These options are best for more expensive kitchen remodeling projects as the math is based on home equity as collateral.

Generally speaking, the secured financing process is best suited for a high budget, low-interest and long-term payment period understanding. Be mindful that even though benefits may seem higher, the risks will be too in this case.

Since you’re putting your home as collateral, missing out on payments or being unable to make more payments will result in foreclosure. There are also some extra costs involved such as closing costs and red tape which involve equity calculations.

You also need to have positive equity — which means that you need to own at least 20% of the total home value to qualify for secured financing. If you think your remodel fits the criteria, here are options you can consider under secured financing:

 

1. Home Equity Loan

Home Equity Loan or HEL gives you the financing you need based on your current positive equity. It is based on your home’s market value minus the amount you owe — which gives you the equity number.

The bank uses this as collateral, thus giving you low interest and a long repayment period. HEL is like taking an additional loan towards your home and results in two payments; one for your mortgage and one for the loan.

 

2. Refinancing

Refinancing is when you take a loan on your home for a higher amount and pay off the earlier mortgage while using the remaining amount for yourself — which in this case in kitchen remodeling. For example, if you owe $60,000 and take out a loan for $90,000, you pay off the first loan and use the remaining $30,000 for your kitchen remodeling.

A huge advantage is that you may end up getting a lower interest rate even though the repayment period is much longer.

 

 3. HELOC

HELOC or Home Equity Line Of Credit is a revolving line of credit. HELOC has a draw period, within which you can withdraw any amount that you’re approved of. This means that you are free to use the approved amount for as many sudden expenditures without having to worry about re-applying for loans.

Like many other Secured financing options, getting HELOC for your kitchen remodel is dependent on your credit history and home equity. But your credit history, in this case, can actually help you secure a relatively lower rate of interest.

Within HELOC, there are two types of interest rates: variable and fixed. In variable interest, the rates change on a monthly basis and in fixed interest, the rate is set at the beginning and doesn’t change. Based on your credit score, you might just be able to secure a lower fixed interest at the beginning itself.

 

Which Financing Option Should You Pick?

 

Kitchen remodeling doesn’t happen time and again; hence when you do it — you should do it right. While considering all these financing options for your kitchen remodel, you have to make the final decision based on your budget and eligibility for any of these options.

There is no right answer as the factors vary from house to house. No kitchen is the same, and neither is a homeowner — so we suggest that you pick something you feel comfortable with and are certain about and go from there.