Your home should feel like a refuge. If it doesn’t, then being there can be more difficult and stressful that it needs to be. The issue for a lot of homeowners is finding the funds to make home improvements without running up a huge bill on your store credit cards.
Home improvement loans offer a potentially low-cost way to make your home look and feel better and add to its value. One of the questions we hear frequently from our Addition Financial members who own homes is this:
“What are the best home improvement loans?”
That’s a great question to ask because, as you might expect, you have options! There are various types of home improvement loans to consider and you’ll be able to make the right decision if you understand each type of loan and how they work. Here’s what you need to know.
A home equity loan is a personal loan that uses your equity in your home as collateral. Your equity is the difference between the appraised value of your home and the amount you owe on your mortgage and other liens. As a rule, you’ll need at least 20% equity to qualify for a home equity loan.
Some of the key features of home equity loans include:
Home equity loans can be used for more than home improvements. You can use them to consolidate credit card debt, buy a vehicle or even pay for a college education.
Home equity lines of credit, or HELOCs, have a lot in common with home equity loans. However, there are some key differences that make them an attractive alternative if you want to increase the value of your home.
The most important features of a HELOC are:
While both home equity loans and HELOCs use equity as collateral, HELOCs allow more flexibility in borrowing because you’ll pay interest only on what you borrow. However, you will need to be prepared for your interest rates to fluctuate. Addition Financial’s HELOCs use the prime rate plus a margin for the interest rate.
A personal line of credit has some things in common with a home equity line of credit with one key difference: a personal line of credit is based mostly on your personal credit history and not on any equity you might have in your home. That means this type of loan is available to renters as well as homeowners.
Here are the most important features of a personal line of credit:
Addition Financial offers personal lines of credit with a minimum of $500 and a maximum of $30,000. You can withdraw money as you need it. A personal line of credit can help you get the money you need to pursue your goals or meet unexpected expenses at an affordable rate.
To apply for a personal line of credit with Addition Financial, all you’ll need is a government-issued ID and proof of income (your most recent pay stub or your latest tax return). Click here to learn more.
The final home improvement loan option you should know about is the personal loan. We call ours the Signature Loan, but basically they are simple and easy to apply for, and you can use them for home improvement or for other spending as it suits your needs.
Here are the most important features of our Signature Loan:
One thing that is important to note is that because Signature Loans are unsecured, the interest rates may be higher than they would be with a secured loan. Learn more about Signature Loans from Addition Financial.
Store credit cards – and even cards you get directly from a financial institution – can carry high interest rates that translate to higher monthly payments than you might prefer. One of the benefits of taking out the home improvement loans we have mentioned here is that you may be able to use them to consolidate your debt and reduce your monthly payments.
We asked our panel of financial experts what they thought about using home improvement loans to consolidate debt. Here are some of the points they made:
With unsecured loans such as a personal line of credit or a personal loan, the question often comes down to the interest rates. Store credit cards typically have high interest rates and if you can qualify for a personal loan, you may be able to save money on your monthly payments by consolidating your debt. The key is to make sure you understand how much your monthly payments will be on the loan and plan accordingly.
Loans that are earmarked only for home improvement must be used for home improvement expenses, including new construction, renovations and repairs. However, the loans we have mentioned here can all be used for home improvement and for other expenses without restriction.
Some of the other things you can use loan money for include:
Spending a little money to increase the value of your home is a good use for each one of these loans. That’s because you can build more equity in your home. You’ll stand to make more when you sell your home, and you can use that money as a down payment on a new home or to invest for your retirement.
The most flexible loan option here in terms of borrowing and spending is the home equity line of credit. You can borrow whenever you want to during the borrowing period. As you repay funds, more money becomes available to borrow. You may use the funds from a HELOC for any expense, including home improvement, debt consolidation, purchases and more.
Home improvement loans offer an easy and affordable way to get out from underneath high credit card interest rates and get the money you need to pay for your expenses. The key to using them wisely is to be disciplined and keep your long-term financial goals in mind.
Do you want to get the money you need with flexible terms? Click here to apply for an Addition Financial HELOC today!