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Home Improvement Loan or Personal Loan
Personal loan or home improvement loan? That’s the question.
We love to decorate our houses.
And there are phases in our lives when we may have spent too much time watching Food Food or TLC, building castles in the air with visions of turning our kitchen into a chef’s paradise. Or maybe our master bathroom is just one shower away from disaster. Because we really like Italian tiles in the bathroom.
And if so, then cheers, you’re not alone. Recently, Harvard University’s Joint Center for Housing Studies researched and reported that the home improvement industry should continue to see record spending in 2016. For many people, this means borrowing money to pay for well-planned home improvements and home decorating plans. .
A hard and difficult and perhaps hypothetical question must now be faced.
So, which home improvement loan is right for you?
Many homeowners and do-it-yourselfers want to take advantage of the equity in their homes. But home equity loans or home equity lines of credit may not be possible or very practical for some borrowers. In this case, you should consider using a personal loan.
Although it is known that a personal loan can be used for various reasons, there are a few reasons why a personal loan can have advantages over home equity loans when it comes to a renovation loan, to be precise.
The process of applying for a personal loan is usually quite simple and fairly straightforward. Your own financial situation – such as your credit history and earning capacity; this is often the main deciding factor as to whether or not you will be able to get a loan, for how much, and if so, at what interest rate. Some personal loans even boast that they have no origination fee.
However, home equity loans or home improvement loans, on the other hand, are similar to a mortgage application (in fact, home equity loans are sometimes called a secondary mortgage). How much you can borrow depends on several factors, including the value of your home. Because you can only borrow against the equity you already have (ie the difference between the value of your home and your mortgage), you may need to arrange – and pay for – a home appraisal.
Now let’s look at this example in the case of a home improvement loan. With a home equity loan or home improvement loan, you can only borrow against the equity you have – which as a new home owner probably isn’t much. Maybe you haven’t had enough time to pay off your mortgage and the market hasn’t yet increased the price of your home. A personal loan allows you to get started on home improvements, no matter how much equity you have. So, this is one of the benefits of availing a home improvement loan.
With a home equity loan, you use your home as collateral, which means your home could be foreclosed upon if you are unable to make repayments. While defaulting on your personal loan carries its own risks (like ruining your credit and credit score), it’s not tied directly to a roof over your head like a gun to your head. Therefore, it is better and safer to take advantage of a personal loan.
So if you were to decide, which one is better and safer and more suitable?
Personal loans may not be suitable for every borrower looking for a home improvement loan. For example, if you have significant equity in your home and want to borrow a large amount, you may be able to save money with lower home loan interest rates. In addition, interest payments on home loans and lines of credit may be tax-deductible under certain circumstances; however, this is clearly not the case for personal loans.
On the other hand, personal loans can make sense for these types of customers:-
• Recent home buyers.
• Smaller loans for home improvements (eg a bathroom or kitchen as opposed to a complete renovation)
• Borrowers in markets with lower home values (if your home’s value has barely moved since you moved, you may not have much capital to draw on for a home equity loan).
• For those who value simplicity and speed.
• Borrowers with excellent credit and cash flow.
While home equity loans and lines of credit are a good source of money for home improvements if you’ve already built equity in your home, a personal loan may be a better alternative if, say, you’re a new home owner and need to make some updates to make your new the home is just right and perfect.
In the end, we conclude that a personal loan is always a better option than a home improvement loan.
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