Once you’re on your way to owning your own home thanks to a mortgage, the next natural step will be to make your mark in the house you’ve bought with a little tweaking here and there or full out major renovations on the space. Most mortgages come with the home improvement loan option, but have you considered taking out a personal loan instead?
Here are a few advantages this loan type has over your typical home improvement loan:
Fixed interest rates
Now, mortgages have variable interest rates. Even fixed rates only work for a few years before the mortgage is adjusted to the prevailing interest rates. If you add a home improvement loan to your mortgage, it will be subject to the same terms. You may be lured by the initial low interest rates that variable loan packages present, but bear in mind that once you’re in, they could rise to be higher than you even thought.
This is not only risky and expensive but it doesn’t allow you the luxury of actually planning for your repayments in advance. Personal loans come with fixed rates and you can draw up a repayment schedule that’s a compromise between what you want and what the lender can give. Still, once you sign on the dotted line there are no surprises.
Limited repayment period
Typically, moneylender loans have a fixed repayment period of between one and five years, with fixed monthly repayment periods. Now, remember that even if the interest is higher than what your home improvement loan provider offers, you may still end up paying high interest because of the duration of the loan – some can go as long as 10 years.
It may be straining to make the repayments over that period, but you do get the freedom to finish with your loan and move on to other project, instead of dragging around the weight of a debt for many years to come. You’re sure what you need to do, you’re sure of the installments you’d be making throughout the entire life of your loan. Then in no time, you have freed yourself to take on another project.
The interest-only caveat
Before you sign up for that home equity loan for your remodeling plans, which was a good idea a few years ago, you need to weigh the options carefully. Home equity loans are staked against your house, hence if you default you may lose your home. Home equity loans also have the addendum that lets you pay interest only for up to 10 years before you start repaying the actual loan. A good idea seemingly, but at the end if the loan, you’ll have paid over double what you borrowed to begin with.
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