Your home is one of the most significant investments you’ll make in your lifetime. Upgrades and renovations are a fantastic way to boost your quality of living and add value to your property. But what is the best home improvement loan?
There is no one-size-fits-all answer to this question. Let’s examine a few of your best options.
Option 1: Take out a personal loan
For most small- to medium-sized home improvement projects, taking out a personal loan is a top option to consider. This is especially true if the upgrades you are making are solely cosmetic.
Here are a few reasons personal loans are one of the best loans for home improvements:
- Personal loans are cheap, fast, and easy. Closing costs for personal loans are usually quite low. The application process is quick – in some cases, you can expect to be approved on the same day as you lodge your application.
- Personal loans are paid back fast. If you decide to refinance your property (more on that below) to fund home improvements, you’ll most likely be paying for those improvements for the next 15 to 30 years. Stretching out repayments will lead to a higher lifetime interest cost.
Do keep in mind, however, that personal loans typically come with higher interest rates than home loans. Personal loans’ lifetime interest cost will probably be less despite the higher rate.
Option 2: Refinance your home loan
If the interest rate on your home loan is higher than current rates, you may benefit from refinancing. This could lower your monthly repayments, all the while freeing up cash for your home improvement project.
You might also consider a cash-out refinance. Some lenders will allow you to borrow up to 80 per cent of your home’s value – that means cold, hard cash that you can use to renovate your property.
If you do decide to take this route of financing, do keep in mind that you are putting your home up as collateral for a bigger loan than you already have. You’ll be paying for costs with a long-term loan, adding the expenses of interest and other fees to the overall cost of your renovations.
Option 3: Use a credit card
If you don’t have the cash up-front, you could use a credit card to make home improvements. Just be 100 percent sure you can pay off your balance within a short period of time – credit cards usually boast interest rates higher than any other type of financing.
Option 4: Save up and pay with cash
Patience is a virtue, right? If you are in a position to put away a portion of your income each week, and the improvements you plan to make are not urgent, saving up could be the best option.