Whether you’re a new home owner or you’ve watched your house deteriorate over time, home improvements an inevitable part of owning a home. The home remodeling industry is experiencing a boom right now, which makes sense considering that almost two-thirds (62 percent) of homeowners don’t ever plan on moving. Maybe you want to spruce up your kitchen, replace your roof, or finally knock down that unsightly wall in the middle of the living room. These renovations can make a huge difference to the beauty and functionality (not to mention value) of your home – but they come with a hefty price tag. You’ve got options. Read more to learn what financial solution makes the most sense for you.
Home equity loans are a type of second mortgage. To calculate equity, subtract any outstanding home loan balances (like your mortgage) from the market value of your home. If you’re paying $300,000 for your home and paid 20 percent down and got a loan to cover your home’s remaining value--- $240,000. You’ve bought the home, but you only “own” $60,000 worth of it. You have 20 percent equity in your home. As you continue to pay off your mortgage and/or the value of your home increases, so does your equity. The higher your equity, the higher your borrowing power against the value of your home.
There are many benefits to a home equity loan. You can borrow a large amount of money with low interest rates (even if you have bad credit) with a significantly longer repayment period (10-15 years). Sounds too good to be true? Well, there’s one serious downside. Failure to repay a home equity loan means losing your home.
If your home improvement project is relatively small, let’s say around $20,000, it might not be worth the stress of putting your home on the line or putting yourself in long-term debt for a kitchen backsplash and new bathroom tiles.
Unsecured personal loans
Unlike a home equity loan, an unsecured personal loan doesn’t put your home or any of your assets on the line. Because there is no collateral on unsecured personal loans, interest rates do tend to be higher, and repayment plans do tend to be shorter--- five-seven years is the standard. Like with any personal loan, interest rates are determined by your credit score, but some online lenders also take other factors into consideration like income and education when offering a rate – so bad credit doesn’t immediately disqualify you from a competitive rate.
Unlike a home equity loan, the application and qualification process for an unsecured personal loan is quick and easy, with many borrowers having the funds in their hands within a day or two. If you’ve got room in your budget to pay off your debt in the next seven years (plus interest), an unsecured personal loan could be the ideal way to make the home of your dreams a reality.