When it comes to remodeling or improving your home, you have a few options. Obviously, you can pay cash for such improvements if you have it. If you don’t have it, however, there are a couple of different personal loan types that are specifically designed for improving your home: home equity loans and home equity lines of credit.
Today we’ll take a look at each, and look at when it’s best to take them out.
Home Equity Loan
A home equity loan is a lump sum loan that you take out with your home as the collateral. This type of loan is for a fixed amount, and may be relatively large. In many cases, you can borrow up to a certain percentage of the value of your home with this type of loan. Sometimes, these loans are referred to as a “second mortgage.”
A home equity loan is best for when you have major expenses, unexpected expenses, or when you’re making a large investment in your home. A home equity loan offers you a lower interest rate than a home equity line of credit. The loan term is often longer than it is with other loan types.
Home Equity Line of Credit
A home equity line of credit is a little bit different. This is a line of credit that you can draw on in the same way that you might draw from a credit card or a savings account. The line of credit is secured by the equity in your home. The rate for a home equity line of credit is usually adjustable, which means that it may change from time to time depending on market trends.
A home equity line of credit is best for ongoing projects, such as major renovations to your home that you want to do over a period of time. The advantage to this type of loan is that you only pay for what you borrow. In addition, you can often qualify much easier for a home equity line of credit than you can for a home equity loan.
No matter which type of personal loan you choose to pay for your improvements or renovations, remember that it pays to shop around. Compare rates and costs of loans and lines of credit at several different banks before you commit. In the long run, this can save you hundreds of dollars in interest.
Photo via Brock Builders