Home Improvement Loan Explained

By: Adrian Fletcher

Many homeowners take a great deal of pride in their home and like to renovate or refurbish parts of the property from time to time. Occasionally, they decide that the house needs a completely new look and decide to remodel the house by adding a new room or extending parts of existing rooms. There are obvious benefits to doing this. You can improve your lifestyle or quality of life, you can get a great deal of satisfaction by working on a project that is close to your heart and, finally, it can be financially worthwhile. However, although you can make a bit of money by remodeling your home the first consideration that many people have is where will the money come from to start the project. There are quite a few options in this respect, one of which is the home improvement loan. This article will cover some of the frequently asked questions about home improvement loans and help you make an informed decision. should you choose to use this method for financing your next home improvement project.

Home improvement loan - what is it ?

A home improvement loan is a lump sum of money that is secured by the property that your are renovating. Once you have this money you can use it however you think it should be used.

Why get a home improvement loan ?

You don't need a home improvement loan if you have a chunk of money sitting around doing nothing but most people are not in that position. As already stated, a home improvement loan can be used for any type of renovation or remodeling project that you may have planned. This can be something quite grand like building an in ground swimming pool or something as simple as a makeover of the bathroom or kitchen. Having said this, there is generally a minimum and maximum amount that you can borrow based on a set of criteria that is covered in the next question.

How much can I borrow ?

This depends on a number of things, notably the value of the home, the amount that the project will cost and your ability to pay back the loan. Most lending institutions sell products that use the loan to value ratio as a benchmark. This means that they will generally only lend around 15% of the total value of the property to a person planning a home improvement project.

What period can I repay a home improvement loan over ?

Of course this is up to the company and loan that you have decided on. In general, most of these types of loans will extend from 5 to 25 years in length. Some may have options to pay off early too.

What's the best home improvement lending company for me ?

Well, the first thing most people check for is a favorable interest rate on the loan they will be taking out. Work out if you will be paying more or less after you have factored in any extra costs. You may also want to consider the credentials and professionalism of the company that you are using as you will be dealing with them over the term of the loan.

You should also consider any extra costs that will come with the product, like an application fee and appraisal costs. Check all the fine details for any penalty clauses such as late payment or early repayment penalties. Above all, go for a loan that suits your requirements as there are so many to choose from that you can afford to be picky.