Consumer Alert: Renovation money smarts

(National-Consumer Reports) August 24, 2006 - Redoing a kitchen can cost a fortune. Before you start pulling down cabinets and looking for new appliances, it's important to carefully plan what you want to spend. Then you have to find the money. Consumer Reports just looked into several ways you can finance the project.

Helene Beyer renovated her kitchen 15 years ago before her three children. Now it's time to do it again. "As the kids are getting older, we find that we are getting more and more cramped."

Helene isn't alone. Almost $200 billion was spent last year on home renovations, repairs, and maintenance. Consumer Reports Tobie Stanger just reviewed traditional financing options, as well as some new promotions being offered to consumers.

Lowe's project card gives you six months, no-interest to buy all the materials for your renovation. At the end of six months, the project window is closed and you repay the amount at a fixed rate. Stanger says, "The Lowe's project card is essentially a home-improvement loan.  And, it has many of the same features as Home Depot's home-improvement loan, including the interest rate."

Chase has started offering the Chase Home Improvement Rewards Card. You get triple points for each dollar spent on a home-improvement purchase. Once you earn 2,500 points, you get a $25 gift card.

It sounds pretty good, but Stanger sees a difficulty. "The card has a zero-percent introductory rate for up to a year if you meet certain requirements, but if you don't, your interest rate could climb to almost 23 percent. That's very high."

If your home renovation is going to include more than one project, Consumer Reports says a home-equity line of credit can be a good option. You have to get approved for a certain dollar amount then you pay interest only on the money that you borrow, not the total credit line.

Stanger says, "Lenders are competitive, which is good because it means the closing costs aren't very high, but this is based on a floating interest rate and interest rates have been rising recently so you have to be careful with this one."

If rising rates scare you, a home-equity loan may be your better option to cover renovation expenses. Closing costs can be as high as $1,000 but the interest rate on the amount borrowed is fixed.

Consumer Reports says a credit card can be an option for covering a renovation project, but only if it's for a smaller project that you know you can pay off pretty quickly.

Otherwise, the project could end up costing you a lot more than you counted on.

Posted 5:00pm by Chantelle Janelle

Consumer Reports has no commercial relationship with any advertiser or sponsor appearing on this website. Copyright © 2000-2006 Consumers Union of U.S., Inc