With COVID-19 having changed the way Americans use their homes, many people are thinking about upgrading or remodeling their spaces.
If you’re one of the many Americans looking for a change, you might be considering taking out a home improvement loan to fund a project at your house. But before you start calling contractors or applying for a personal loan from the bank, consider whether this is a smart financial move at the moment.
There may be very good reasons why you decide that postponing your project is your best bet. Here’s why.
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A home improvement loan could be a costly mistake right now
There’s a simple reason why it may be a bad time to take out a home improvement loan right now: Home improvement projects will likely be much more expensive under current conditions than they normally would.
See, because of the pandemic, supply chain issues, and a host of other complex factors, the prices of many building materials are sky-high right now.
There’s a lumber shortage, which has translated to much higher prices on wood. Fuel, copper, steel, and aluminum prices are up, too.Lighting supplies have become more expensive, and there’s even a risk of a paint shortage. What’s more, a semiconductor chip shortage is making things like appliances more costly.
Because the costs of materials have risen sharply, contractors are bidding more on home improvement projects. And with a hot housing market and many people building and making improvements, a lot of contractors are also very busy — and either not taking on new projects or charging a premium.
When the costs of construction rise, and you’re borrowing to fund improvements, you would naturally need to take out a larger loan to cover the higher costs you have to pay for your project. And the more money you borrow to pay for improvements, the higher your monthly loan payments would be and the more interest you would have to pay over time.
Unless you need to do a home improvement project now for your safety or because your home isn’t livable without upgrades or repairs, there’s probably very little reason to make changes to your property right now. Rather than paying a huge premium price for your upgrades — and ending up with a loan that’s harder to repay — consider sitting back and waiting a bit.
It’s likely that the shortages will eventually be worked out, the price of goods will return to a more reasonable level, and you’ll be able to get a better quote from contractors so you don’t have to borrow as much. Patience may pay off if you can wait a bit for prices to fall since your loan will be much more affordable if you keep your project costs to a more reasonable level.