Loan Alternatives for Home Improvement
Posted on: 31 January 2019 by Deeno Mouchis
Loan Alternatives for Home Improvement
Making home improvements will bring more comfort and efficiency to your home with the intention that it might also increase its market value. The problem is that not everyone can save enough to pay upfront for house upgrades.
If you think you may need to borrow money to start your home improvement project, there’s a variety of home improvement loans available.
Home Equity Loans
If you are considering making a large home improvement, it may require that you borrow money against your property’s equity or maybe think about getting a second mortgage. These types of loans do come with low-interest rates that you will not find in any other type of loan.
There is, however, a downside: home equity loans are extremely risky and failing to meet your payments could mean foreclosure, so make sure you think it through and discuss this with your partner before making any decision.
Getting a second mortgage is also a type of secured loan that can get you closer to your home improvement dreams. They become very useful as they usually allow access to much larger sums, plus low-interest rates that are also beneficial but don’t overlook the entailed risks.
If you're facing a low credit score or limited borrowing options, it is recommended to find with your preferred financial institution if there’s a special government program that they work with. This is a good option but it will surely entail its own requirements and financial thresholds for you to apply, nevertheless, it can be a solution suited to your needs.
If the home improvement project that you want isn’t that big, then personal loans are the way to go. It can be hard to find the line between a small home improvement project and a minor aesthetic improvement, but that’s not a problem because a personal loan fits for both.
If you manage to make your home improvement with a rather small amount and meet you repayments in time, the chances are that closing costs for the loan will be substantially lower.
Plus they’re not a secured loan which means that none of your property is used as collateral hence, its risk-free for you, and banks have extremely fast and easy ways to apply for them, meaning that you’ll be notified faster if you were approved or not. Another benefit is that personal loans have faster repayment periods, meaning that they usually last less than 10 years.
The downside is that interest rates are higher than interest rates for home loans. Consider how strong both your income and your credit score are. Don’t forget that credit cards are a form of personal loans so explore your options carefully to find the lowest interest rate.
Refinance an existing loan
Cash-out refinancing is also another banking option. This is a new loan that will replace an existing one, so you can borrow a little bit more and use the extra for a home improvement project. If cashing out sounds like an option, keep in mind that closing costs may turn the refinancing into an expensive solution.
This happens because if you extend the duration of your loan, all repayment will go mostly towards interest, not the actual loan balance so there's no chance of paying before time unless you always pay a little extra.
When the time comes to speak with a lender, make sure that you have explored all of the lender's cash/out refinancing options, there may be refinancing programs aimed for people like you who want to home improve their property.
Home improvement is something that the majority of homeowners want but maybe a loan is not an option either, in that case, people need to find ways to boost their earnings and/or savings. For instance, many people are using the money they got back after the PPI scandal for home improvement, here you can find if there's unexpected money waiting for you.
You can find the solution to your home improvement need through any of these recommendations, remember that responsibility and patience are vital here and never rule out good saving habits as the best tool to accomplish your dreams debt-free.