Last Updated on December 15, 2023 by Jason Nguyen
Owning your own home is a great accomplishment, and most people attest to this. That’s why people still go on a home-buying spree despite the adverse economic effects of the pandemic.
A home isn’t just an investment. It’s an asset that can guarantee your financial security. Your home builds up equity over time, which is very useful.
However, homes depreciate over time. The value of their equity erodes as it depreciates, so there’s a need to make constant improvement. A home improvement loan can help you refurbish your property.
So, have you been wondering about repairing your leaking roof? Are inadequate finances holding you back from making improvements that your home badly needs? Below are the benefits you’ll enjoy from taking a home improvement loan.
1. There’s No Need for a Collateral to Access Home Improvement Loan
Renovations are great for improving the curb appeal of your home. But these renovations are quite expensive for a lot of homeowners. Only a few people with deep pockets can finance the renovations from their savings.
Going for a home improvement loan is a worthy option for a smart homeowner. Lenders won’t ask for any collateral before they extend this loan to you. The equity of your house won’t be a factor in accessing this renovation funding.
The absence of collateral in securing this loan protects your property from foreclosure. However, this should not be an excuse to misappropriate the funds.
Make sure to develop a detailed upgrade plan when you consider a renovation loan. The plan will help you channel the funds to the right use. It will also ease the process of convincing lenders to give you the loan.
2. Relatively Low-Interest Rates
You can access renovation funding from multiple sources aside from the home improvement loan. A home equity line of credit (HELOC) and credit cards are some of the popular channels. But are they good for your financial security?
Let’s consider how the interest rates of the two alternatives compare to improvement loans. The interest rates for HELOC fluctuates over the life of the loan. This means that you’ll never be certain of the monthly repayment amount at any given time.
The uncertainty can put you at risk of defaulting. Improvement loans, on the other hand, have a fixed low interest rate and repayment amount. They enable you to budget and plan in advance on how to refinance them.
Lenders will at times extend credit with 0% interest as an introductory offer. You can use this credit facility to apply for loans for improving your house. However, the 0% interest has a time limit of usually 18 months.
You are expected to refinance the loan within this time frame. If you fail to do so, the interest rate will shoot up to unmanageable levels.
0% credit card loans can be great for renovating your house if you can repay within the grace period. But improvement costs are highly susceptible to fluctuations. Improving your home using credit cards can lead you into a vicious cycle of debt.
It’s better to go for a home improvement loan since they are stable; their interest rates are low and fixed. The risk of defaulting on this loan is very low since you are aware of the repayment amount in advance.
3. Easy to Access
Accessing the home improvement loan isn’t complicated. All you need is a good credit history and a stable source of income. These will demonstrate to lenders that you can pay.
This loan doesn’t require collateral, so there’s no need for a home appraisal value. The process of appraising a house can take a long time, especially if your house is huge. Eliminating this process makes it easier and faster to access the loan.
The favorable perception of this loan by lenders also contributes to the ease of their access. Lenders consider people who apply for this loan as parties who are interested in increasing the equity of their homes.
Improvements increase the value of a property, an asset that lenders consider their own. Lenders, therefore, will be very willing to extend an improvement loan when you apply for it. It’s always a win-win for them and their clients when it comes to this loan.
Always make sure that you have a strong credit score. You can do this by paying all your debts on time. A bad credit score will lock you out of improvement loans despite the ease of access.
4. Flexibility of Use
You take this loan for improving your house. The lender won’t limit you to the kind of renovations you can undertake. This loan will assist you to add extra rooms to your property or construct a new balcony.
You can utilize the savings after completing the renovations for activities such as replacing your room’s cabinet. This kind of flexibility is integral to the renovation process. It doesn’t force you to make prior arrangements with the lender before changing the renovation plans.
Be careful not to use the funds for other purposes than renovations. Violating the terms of your loan agreement is very costly. It affects your ability to access any type of funding in the future.
5. Increasing Your Home’s Equity
Your home’s equity value rises when you pay your mortgage consistently. You can increase this equity further by making improvements to your property. Equity simply refers to your stake in a property as opposed to the financier’s stake.
A high equity value is a critical aspect for every property owner. It increases their borrowing power from other forms of credit. Who wouldn’t want a loan product that boosts their credit standing when they take it?
Increase the Value of Your Home With an Improvement Loan
Homes are one of the greatest assets that you can own. Yet they can lose value and become worthless when you don’t care for them. You need to engage in occasional renovations to improve the property’s worth.
A home improvement loan will help you do that. This loan is very affordable and it’s easily accessible. You won’t have a problem repaying it if you adhere to financial discipline.
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