Anyone who has undergone a major home improvement project knows that it can be an expensive endeavor. With that in mind, does it make sense to borrow the funds that you need for making these updates?
There are actually be a couple of financing options available if you are planning to renovate your home. These can include a home equity loan or a personal home improvement loan.
Home Equity Loans for your Remodeling Budget
Home equity loans, oftentimes referred to as second mortgages, involve using the home’s equity as collateral. This is the difference between your current mortgage balance and the value of your home.
Homeowners may also have the option of taking out home equity loans in stages. For example, you can take a home equity loan of $40,000 to cover some updates and then later borrow another $20,000 for other improvements or repairs that need to be done. This is an important point because your home’s value increases with the renovations you complete.
Personal Home Improvement Loans to Cover Renovations Costs
The other option is to take out a personal home improvement loan, which does not require using your home’s equity as collateral for this type of financing. However, this type of loan is riskier for the lender or bank. You may end up being charged a higher interest rate on a home improvement loan than a home equity loan.
Benefits of Utilizing a Loan to Update Your Home
The benefits of using the equity in your home for home improvement include:
- Tax deduction: The interest you pay on home equity loans and HELOCs is tax-deductible.
- Low-interest rates: Both home equity loans and Home equity line of credit (HELOC) carry low-interest rates because they use the home as collateral. (lower risk for the lender)
- ROI: Investing in your home is always a good idea, whether you’re looking to sell or create a more comfortable space.
Making the Best Decision For Your Needs
There are many loans that can help you with a home renovation, but the best way to choose is by considering all your options and finding a loan that will work for you. Before you apply, get your credit score report so that there is no unforeseen issues with your credit profile. Also, it’s important to have a realistic idea of project costs and decide the right type of loan you want to apply for.
Today, home remodeling projects can be very costly. You may need to take out a personal loan or use your home’s equity for home renovations. Both options have advantages and disadvantages that need to be considered before making any decisions regarding borrowing funds.