Options in financing home projects

Building a new room on the back of the house yourself may seem like a snap after you've figured out how to finance the loan.

With high interest rates, even home improvements can be a expensive prospect these days. But mortgage rates are even higher - plus ''points'' - so many people still find it's cheaper to fix up than to move on. (Each point represents 1 percent of the loan.)

If you are not doing the job yourself, do not let the contractor push you into any loan terms he might be offering. First check local banks, savings and loans, thrift associations, and credit unions.

While rates on mortgages are running at 17 and 18 percent and higher, home-improvement loans are 1 or 2 percentage points lower. Second mortgages are about the same as home-purchase mortgages, but you probably won't have the extra points to pay.

Many banks and S&Ls have limits on the size of home-improvement loans they will write, often in the $10,000-to-$15,000 range. Above that level, they will require people to take out a second mortgage.

Recently, many people have rediscovered their life-insurance policies and are borrowing on them at bargain-basement interest rates.

In addition, your present mortgage may have a clause that permits you to borrow - at the same interest as your mortgage - up to the amount of the loan you have already paid off.

Another type of loan that is a casualty of high interest rates may come back when rates go down again. This is the Title I loan insured by the Federal Housing Administration. Interest charged on these loans is supposed to be significantly lower than conventional loans, so most banks have simply stopped writing them - at least for now.

The borrower has only to be a good credit risk and own the property being improved.

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