Home improvements can make your property much more comfortable, efficient and valuable. While it is best to save for upgrades and pay money, this may not be realistic. So, if you need to borrow, you have some good options for home improvement loans.
For smaller projects, personal credit is an easy solution. You can use the funds for anything you want, including projects that do not qualify as “needs.” If you install sprinklers or make minor cosmetic enhancements, personal credit might be appropriate.
Cheap and easy: The cost of closing personal loans is usually quite low, especially if you keep a large loan size. The application process is not as difficult as applying for a home equity loan, and you do not have to pay estimates and other services to get approved. Also, personal loans do not require you to pledge anything as collateral.
Fast repayment: Unlike home loans that can have a repayment period of 15 to 30 years, personal loans typically last less than 10 years. While this means that you will have relatively high payments, you will not be stuck with paying loans for the next few decades. Plus, stretching payments leads to high costs for life interests.
Interest Rates: Personal loans often come with higher interest rates than home loans, so you will need to carefully evaluate your options. If you have big loans and enough income to repay, you can expect a rate well below 10 percent.
But credit cards are also personal loans. Credit card rates range from changes from 0% to more than 20% APR for bad credit borrowers.
More extensive projects may require you to borrow in relation to equity in your home. A second mortgage can be useful in several ways.
Lower Rates: By committing your home as collateral, you should qualify for lower interest rates than you would with personal credit. The trade-off is that the consequences of not doing so are dire. If you cannot make payments for any reason, you run the risk of foreclosure.
Big Loans: Secured loans improve your chances of lending on big loans. If you have significant capital in your home, a second mortgage may be the only way to access these funds.
Closing Costs: Borrowing towards your home is rarely cheap, but other mortgages are more expensive than buying a loan (or refinancing).
Refinancing can also provide the financing you need to improve your home. New credit can replace your existing home loan, and you can borrow a bit to pay for improvement projects. You may not own the funds – but the money is available to pay for contractors and supplies.
Valuation loans: If you are tempted to cash in for improvement projects, become familiar with your loan-to-value (LTV) relationship. You need it just enough for the strategy to make sense. If you have minimal capital, the government programs below can help you get approved.
Refinancing Costs: Since you get a brand new home loan, closing costs can make refinancing expensive.
Also, you extend the life of your loan, so new monthly payments will generally go towards interest rather than diminishing your loan. But you can always pay more and eliminate your debt early.
Home Improvement Programs: Some credit programs are designed to help you make some extra money to upgrade. For example, the mortgage allows you to buy or refinance using the “completed” home value to calculate the available credit balance.