Your home is a valuable investment. Making it risk-proof and safe at all times is vital for the well-being of the whole family. Part of keeping it more livable and secure is home improvement plans. If you are considering a home remodeling project, adding a new wing, or repairing the roof, you need money to finance it. If you don’t have an emergency fund or savings to cover the cost, your next option is to secure a home improvement loan.
A home improvement loan is a type of loan to finance repairs, remodels, and renovations. It is an unsecured loan, meaning the lender approves the loan based on the income and credit history of the borrower. Banks, credit unions, and online lenders offer home improvement loans. It is one of the fastest ways to get hold of cash to pay for your project and does not usually require collateral.
Typically, lenders can give you up to S $100,000, with rates between 6% and 36%. You can qualify for a lower interest rate and repayment if you have an excellent credit score. Payments for home improvement loans are mostly fixed and on a monthly basis.
A personal loan is ideal for mid-size home improvement plans like bathroom renovation, kitchen makeover, or window replacement. Many lenders offer this kind of loan with a promise to release the money into your bank account within the day you applied or several days. They usually charge application processing, prepayment, and late payment fees.
This loan is easy to find, and lenders do not require home equity, which is a relief because you are putting your property at risk. Compared to home equity loans with a S $10,000 minimum amount of loan, personal loan lenders allow you to borrow as little as S $1,000 or the amount that will cover your project.
The disadvantages of a personal loan include higher interest rates and a shorter repayment period. An excellent credit score will qualify you to a lower rate but expect to pay more if you have a poor credit score. The repayment options vary from 2-5 years.
A home equity loan is often called the second mortgage. It is a fixed amount that is based on the value of your home. Like your original mortgage, there is a fixed term and an equal amount of payment per month.
This type of loan is ideal for a large-scale or major home improvement project. Lenders typically limit the loan to 85% of your home value. For instance, the value of your property is S $250,000 and paid S $100,000 mortgage; your total equity now is $100,000 and $150,000 loan balance. Let’s say the value of your home remains the same; the lender will allow you to borrow S $212,500 less mortgage balance of S $150,000, you get S $62,500.
One advantage you get from home equity loans is the protection against market fluctuations. You pay an equal amount monthly within the term because of the fixed interest rate. However, failure to pay this loan within the given period gives your lender an upper hand to foreclose your property. The interest rates are also slightly higher compared to mortgage rates, but lower than credit cards and other unsecured products. This type of loan will reduce your existing home equity, and if you sell your property, you need to immediately repay all the mortgages upon sale.
Another way to finance your home improvement plan is through the home equity line of credit. It works like a credit card, giving you a revolving credit line that you can use when you need it. This is a secure type of loan with your home as collateral.
HELOC allows you to pay interest only per month, then pay back the principal in the later years. You don’t need to withdraw the entire fund at once, just the necessary amount to finance your current project. The interest rate is lower because you have your home to secure the line of credit. Before applying for a HELOC, make sure that you have sufficient home equity.
The advantages include the risk of foreclosure if you fail to repay the loan. Some HELOCs have variable interest rates that may increase your monthly payments when the market condition is unstable.
For short-term or minor home improvements like installing a new shower system or upgrading your kitchen cabinets, your credit card is a lifeline. Use a 0% introductory APR card that allows you to pay back off the balance before the period ends, which is usually 12-18 months.
If you fail to pay it, your debt will be subjected to higher interest rates. Your credit score should be 690 or higher to qualify for this card. For regular credit cards, paying the whole amount within a month will spare you from paying high interest.
It is a form of home financing without securing an additional loan. Refinancing your existing mortgage allows you to apply for a higher amount and use the difference for your home improvement plan.
Consider cash-out refinancing when the interest rate is much lower than the current rate. You also need to pay for the appraisal, taxes, origination fees, and other closing-related expenses.
Check out the home renovation programs of your government. They usually have lower interest rates and insurance. The Federal Housing Administration offers HUD Title 1 Property Improvement Loan, where you can secure up to S $25,000 provided you meet the criteria of this program. You also need to use the money specifically for the intended purpose that will improve your home’s livability.
Overall, securing a loan to finance your home improvement projects entails certain responsibilities that you should meet to prevent detrimental effects to your personal finances. It is also important to compare and choose the type of loan that will give you the best deal and the most competitive interest rate.