Home Improvement Loans - Get More From Financing
The following will be an in depth look at home improvement loans and actionable tips to get more from your financing. Discover how to put your improvement credit line to work for you.
Many homeowners would agree that the home is the most valuable asset acquired in a lifetime. Keeping it in good condition with proper maintenance helps to protect the value and adds to the comfort and enjoyment of the family.
Making changes when there is a need for remodeling and updating, however, can be expensive and not everyone has ready cash to pay for these projects. One way owners make renovation dreams a reality is with home improvement loans.
A number of options and different kinds of loans are available, depending on your credit rating and how much money is needed.
Home Equity Loan
One of the popular home improvement loans is a loan against the equity in your home. The equity is the difference between what you owe on the home to the mortgage holder and the market value of your home, or what it would sell for.
Lenders will usually allow you to borrow most of your equity because it is collateral they can hold to make sure the loan is repaid.
This loan is also called a second mortgage. Keep in mind that if you cannot repay the loan for some reason, the lender can force a sale of your home to recover their money.
The advantage is that the interest rate may be lower because it is a secure loan. The money is given to you in one payment after you and the lender have agreed on the terms and the amount of the monthly payment.
Equity Line of Credit
A home equity line of credit also uses the equity in the home, but it is not paid out to you in one payment. It is more like a credit card with a set limit that can be used as needed. You can continue to use it over a period of time, repay it and use it again so long as you do not exceed the credit limit.
The advantage of the credit line is that it is there when needed without reapplying for a loan, and you only pay interest on the funds you are using at the moment.
Also, even very small amounts can be taken out to do ongoing work without accumulating a large debt to repay. Be sure to understand your terms and ask if your interest rate can change if general lending rates increase.
Refinancing Cash-Out Loan
An alternative to the home equity loans is refinancing the entire mortgage on the home and taking cash out. It is still using the equity in the home because you will refinance the home for more than you currently owe on the mortgage. This may be a good option if it is done while interest rates are low.
Of course, the goal there would be to refinance the entire loan at a lower rate than your original mortgage.
Effect of Your Credit Rating
A benefit of applying for home improvement loans using the equity in your home is that your credit score or credit history may not have much effect on your loan because your home is security for the lender.
In general, when a loan is secured the interest rate is lower and not as much weight is attached to the credit rating of the borrower.
If your credit is less than perfect, in fact, borrowing against your equity and repaying in a timely manner may help to improve your credit score as the lender reports on your responsible repayment. If you have kept up your payments on a first mortgage, check with your lender first to determine if they will extend a loan to you.
Since you already have a good history with your lender, they may be quicker to agree to a loan than another lending agency.
If you apply for a personal loan, or unsecured loan, without using the equity in your home, then your credit history and credit score will be a primary factor in whether you get the loan and how much interest you will pay.
Maintaining good credit has many advantages, from borrowing money to obtaining insurance to securing the job of your dreams. Always pay loans on time whether they are home improvement loans or any other kind of debt as this will ensure a good credit score and low interest rates for you in the future.