Whether you are renovating a house that you just moved into or one that you’ve lived in for many years, home renovations are not inexpensive. Given this, you may not want to charge your home renovation expenses to your credit card. What you should do, if you don’t have the capital ready, is take a personal loan or a home equity loan.
What Is A Home Equity Loan?
When you take a home equity loan, you borrow funds against the value of your home.
Why Should You Get A Home Equity Loan?
Low-interest Rates: Since a home equity loan is a secured loan, meaning you are borrowing against the value of your home, you can expect to be charged a lower rate of interest. These loans also have fixed monthly repayments, making it easy for you to plan your budget.
Tax Benefits: A key benefit of home equity loans is that you get a tax write off on the interest you pay, provided the loan amount is used only to build, buy, or improve your home.
Longer Repayment Term: Borrowers can opt for a repayment tenure ranging between 10 to 30 years. This long repayment term helps lower your monthly payments, making home equity loans a great option if you are on a tight budget.
Why Should You Avoid Taking A Home Equity Loan?
Foreclosure Is A Possibility: Since you are putting up your home as collateral, you could lose your home if you stop repaying the loan.
You Might Not Qualify For A Loan: Since the amount that you can borrow will be based on how much equity you have in the house, you may find that you are ineligible to borrow a loan because you don’t have enough equity.
What Are Personal Loans?
Unlike home equity loans, personal loans are unsecured loans, i.e., these loans are not backed by collateral. Personal loans can usually be taken for a tenure of up to 7 years.
Why Should You Take A Personal Loan?
Easier Application Process: Getting approval for a personal loan is usually easier and faster. All you’ll need to do is submit the required documentation to help the lender verify your details.
No Risk Of Foreclosure: Since you are not putting up your home as collateral, there is no risk of foreclosure. Keep in mind that if you default on your loan payments, your credit score will take a negative hit.
Fixed Interest Rate: You’ll need to pay a fixed interest rate for a personal loan and make monthly repayments for the duration of the loan term.
Why Should You Avoid Taking A Personal Loan?
No Tax Write Off: Unlike home equity loans, you don’t get a tax write off on the interest you pay.
Higher Interest Rates: Since personal loans are unsecured, the interest rate is likely to be higher.
Which Should You Choose?
Either of the two loan options may work for you based on your financial situation. Ensure that you compare your options before making your decision.