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Finance comes at a cost, so deciding whether or not it’s worth taking out finance essentially means looking at the cost of the finance versus the benefit of what it will allow you to afford. In the case of home improvements, there are four points it may be helpful to consider in order to take that decision.

How long are you planning to stay in your home?

This is probably the single, biggest question to ask before deciding whether or not to look at taking out finance for home improvements, in fact it’s probably the single, biggest question to ask before deciding whether or not any home improvements are even justified. Generally speaking, the longer you are planning to stay in your home, the more you will feel the benefit of any improvements and the more reasonable it can be to take out financing to pay for them.

Would the proposed home improvement enable you to stay in your home for longer?

Moving costs money and can be a whole lot of hassle and disruption, which many people, understandably prefer to avoid if possible, which is why many home improvements relate to making better use in some way, whether that’s properly finishing a basement so it can be used as extra living space or working out a creative way to squeeze a little more functionality into an existing space, such as turning a closet into a home office. If your proposed home improvements can help you to stay in a home where you’re happy then the financing costs can be (more than) justified as they will save you the expense and inconvenience of moving home.

Would the proposed home improvement pay for itself in some way?

There are two ways in which a proposed home improvement can pay for itself, one is by adding value to your home when it is sold and the other is by allowing you to generate an extra income from your home. In the former case, you will only realize the value when the home is sold but in the latter, you can start making your home work for you while you are still living in it.

As a rule of thumb, anything which creates extra usable space in your home, be that living space or storage space, will probably add some value to your home when it is sold because most buyers value usable space, which is why sales listings typically state the square footage of a property. Anything which is essentially an amenity may or may not increase the sales value of your home depending on how a buyer views it and when considering the situation from a financial perspective, it’s probably best to assume that amenities are for you and your family to enjoy and if they add value to your home when you sell it, it will be a bonus.

Home improvements can also be used as a means to generate income from your home. The obvious example of this is creating a space which can be used for short-term rentals, although there are many other options. There’s plenty of advice on this specific topic, suffice it to say here, that again, you need to be careful to do your sums properly and think realistically about how much income you could generate and whether there might be any potential pitfalls further down the line, such as local authorities clamping down on whatever you planned to do. Since each local area is different, you would need to do your own research here and think about local opinion where you live.

Could you make cash available without taking out finance?

Generally speaking, people look to finance because they don’t have sufficient cash funds available at that point in time, or, even if they do, because they are concerned that devoting a significant percentage of their available cash towards funding a purchase for which they could have got low-cost finance could leave them at a disadvantage further down the line, if an unexpected event occurs. This can be entirely sensible, however ideally, any major purchases should be made as part of an overall plan for managing the family finances, which should be reviewed regularly, at least once a year. As part of this review, you may wish to look at whether all your investments are still performing as you would like and whether you might find it better overall to liquidate some of them and use the proceeds to fund the proposed home improvement. Depending on how much money you need to raise, you might also want to consider postponing your home improvement and putting some of your disposable income into safer investment vehicles such as bonds, to raise the funds you need.

In short

There is no right or wrong answer as to whether or not taking out finance for home improvements is a good idea, but there are some general pointers which are usually worth consideration.

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