Is using a personal loan for some home improvement projects a good idea? Well, it totally depends on your needs and the interest rate you’re able to get. Interest rates on personal loans range from as low as 2.49% to as high as 36%. A personal loan with a cheaper interest rate could be very amenable to a home improvement project. However, if the interest rates are high, it’ll be very expensive.
Personal loans are usually unsecured loans. This can be helpful if you don’t want to put up your home as a security, which you must do with the home equity loans. Most personal loans have a fixed term between 1 to 7 years. A fixed term can be helpful when budgeting for a predictable monthly payment.
Where to Get Home Improvement Loans
You should always shop around to find the best personal loan for your situation as with any mortgage. To get an idea of what your local banks and credit unions can offer, you can shop around locally. It’s also important to compare with online lenders and peer-to-peer lending sites. You can pick the best option for your situation once you have a good idea of what you qualify for. Some lenders may offer discounts depending on the particular home improvement project.
Alternatives to Consider for Home Improvement Loans
Personal loans are not your only option for a home improvement project. You should consider other loans as well as alternative ways to pay for projects that don’t involve debt.
Home Equity Loans or Home Equity Lines of Credit
You can get the cash that you need for your home improvement project through a home equity loan or HELOC. After the loan is processed you’ll need a significant amount of equity in your home, usually 20%. A home equity loan or HELOC may be a good option for a more expensive project that raises the value of your home. Other options may better suit your needs if you’re considering a smaller project.
These loans come with lower interest rates than personal loans because they’re secured loans. The lender could foreclose on your home if you default on the loan. You might end up paying more interest than with a shorter term personal loan which has a higher interest rate. This is due to the longer term of the loans, ranging from 5 to 20 years. Also, interest on a home equity loan or HELOC may be tax deductible.
You might also want to consider using your credit card for the home improvement projects. You could finance your home improvement project interest-free. This would be possible if you’re able to pay off the project in full within a short period of time, such as the next 18 months, and you qualify for a credit card with a 0% introductory APR on purchases offer. Of course, you’ll have to pay interest on the remaining balance if you can’t pay off the balance in full before the introductory APR period expires.
Alternatives Options Other Than Loans
You may want to consider saving up enough cash before you start your home improvement plan if you don’t want to take on mortgages. You won’t have to pay interest on a mortgage if you save some cash. However, it may take several months or years to save enough money to complete the renovation project.
Contact us if you’re looking for a home renovation loan and we’ll help you with the available options as per your credit profile. Talk to one of the best mortgage brokers in Toronto who specializes in construction and home renovation mortgages to clear up any concerns you may have. We will also help you explore all of the options available based on your goals.