A home improvement loan is a type of mortgage. Unlike a traditional mortgage, the amount borrowed is typically only enough to cover the cost of repairs or upgrades to the house. While this can make them easier to pay off, it is important to remember that, just like with a larger mortgage, the house can be lost in case of default.
One thing that is different about a home improvement loan and a regular mortgage is the length of the term. While a typical mortgage lasts either 15 or 30 years, the home improvement variety can be as short as six months. The term length for your particular loan will depend on the size of the loan and how much you can afford to pay each month. As with regular mortgages, you will also have a choice of a variety of repayment plans.
Risks and Rewards of Borrowing Money to Upgrade Your House
For many people, the risks involved with a home improvement loan are worth it. By getting a loan, you can fix parts of the house that have become broken, rotted or worn out. You can also make improvements like adding a fireplace or pool to the property. Even though construction contractors, pool companies and others usually offer their own financing, you can often save money by choosing the improvement loan instead.
Before applying for the loan, it is important to get quotes for all of the work you want done. This will allow you to borrow the right amount so you don’t either end up short or find yourself paying interest on money you didn’t need to ask for.
If you’re improving the house with the idea of selling it you should do some research to see whether it’s likely that you can make a profit on the project. Compare the selling prices of upgraded houses versus the selling price of houses left as-is. Be sure to look at the prices the houses actually sold for rather than the asking prices. Many sellers ask for amounts that end up being far higher than what they can actually get.
If you don’t care about your house’s selling price, the only limit is what you think the improvements are worth. In that case, the only limit is what you can afford and are willing to pay. Be sure not to overextend yourself when you’re thinking of upgrades. It’s easy to look at a house and come up with enough repairs and upgrades to amount to rebuilding the entire thing. Your bank account, unfortunately, is unlikely to be so flexible.
Avoid Overextending Yourself
Whether you upgrade your house with the intent to sell it or you intend to keep it for years, the most important part of a home improvement loan remains the same: Only borrow what you can afford to pay back. Since the house is the collateral, overextending yourself will have serious consequences.
There are alternative short term cash loans that doesn’t require you to put up your home as collateral. However, there are usually a higher than average interest rate that comes with these loans.