Home Improvement Loans – Are They Suitable for You?
Are you feeling like remodelling your home? Spruce up every corner of your house from a porch to courtyard. When it comes to the refurbishment of your home, you take out a home improvement loan. However, they can be exorbitant. It is always better to wait unless you have enough money to get your house repaired, but what if you do not have this option? Can you take out these loans?
You may need home improvement loans for various reasons, but the significant reason people borrow money to upgrade their houses is to increase the value of a property. If you want to be frugal and avoid paying off interest, you should have some money on hand. The more savings you have, the less money you will borrow.
The guide to home improvement loans
If you do not have savings and you want to renovate your house, you should take out home renovation loans.
Apart from sprucing up the surroundings, whether it is a kitchen, bathroom or patio, these loans will add to the value of your property.
These loans are a kind of unsecured loans that you repay over an extended period at a fixed interest rate. However, you may be restricted to get funds as per your requirements.
Each lender follows a different policy. To get a loan for home refurbishment, you must have a chunk of money you will pay out of your pocket for a repair job. You also need a good credit score to get the deal at a lower interest rate.
Even if you do not have a stellar credit report or do not have enough savings to dip into, you can take out the loan at an affordable interest rate.
You may put security against the loan. With collateral, these loans do not remain unsecured any longer. In fact, you can apply for a large number of funds. Here the security will be your house so make sure that you will pay back the debt on time. Or else, you may lose it.
Before you apply for the home improvement loan, you must compare deals offered by several lenders so that you grab the best deal. These loans are not cheap, hence you should have a big amount of savings you will use in the remodelling of your house. If you cannot afford these loans, you have the following alternatives:
- 0% purchase credit card
0% purchase credit cards allow you to buy anything and pay the price within the grace period without being charged interest. If you do not have savings or you fall short of some money, you can use your credit card. Using the credit card is fine as long as you clear all your dues within the grace period. If this period is expired, you may ask your credit card company to shift the remaining balance to a balance transfer card. However, you will end up with paying fees.
- Mortgage refinance
Refinancing helps you take out a new loan at affordable interest rates replacing the existing one. Market rates keep fluctuating; chances are interest rates when you took out a mortgage was higher than the current rate. Now is the high time you refinanced your mortgage.
You will have three options: rate-and-term refinance, cash-out refinance, and cash-in refinance. Rate-and-term refinance allows you to take out a new mortgage for either a shorter period than the original mortgage or the same period at a low-interest rate.
Cash-out refinance helps you get a new mortgage at a lower interest rate than original home improvement loan or short-term home improvement loan. You will get a higher amount than the original mortgage. The balance may increase by 5% or more based on your repayment capacity. However, you might not be approved for these loans as easy as rate-and-term refinance.
Cash-in refinance allows you to take out a new mortgage at a very low-interest-rate by paying down a fixed percentage of loan-to-value. Whatever the refinancing option you consider, your lender will consider your repayment capacity and creditworthiness. Otherwise, you will not be able to avail competitive interest rates.
The bottom line
If you want to remodel your house, you must have savings to dip into. Create a practical budget and start setting aside a fixed percentage of your income to get your house remodelled. Of course, you might not have built up as many savings as required for home renovation. You will take out a home improvement loan, but you can save money in interest if you combine the amount of loan with savings.
These loans are worth taking out only when your credit history is stellar. Otherwise, these loans may prove very expensive. If these loans do not fit your budget, you should use alternatives to home improvement loans.