When planning a renovation project a personal loan for home improvement can be the answer to covering the costs of upgrades. Not every project should use a home equity loan to fund a remodel project, especially since it can dilute the equity built.
Regardless of whether you’ve moved into a new place or the time has come to renovate a place you’ve lived in for years, at some point many will think about how to make the most of the place they call home.
Your home is your castle, and investing in it adds value. If you’ve been dreaming of a kitchen upgrade, bathroom makeover, or a remodel of some kind, a personal loan can help make your dreams come true. But when considering a personal loan for home improvement is it the right choice, or is a home equity a better option?
Personal Loans or Home Equity Loans
Unless your credit score is only fair (such as under 660) and it is difficult to get a personal loan at a reasonable rate, it’s sometimes worth paying more for a personal loan with slightly higher interest than jeopardizing your most valuable asset (your home) for a few percentage points in the long run. When you get a home equity loan, you might get a better interest rate, but you home is collateral and failure to make your payments means you could lose your home.
When planning a renovation project a personal loan for home improvement can be the answer to covering the costs of upgrades. Not every project should use a home equity loan to fund a remodel project, especially since it can dilute the equity you’ve built. Even if you qualify for a secure home equity loan, it might not be advisable and doesn’t mean you should.
Choosing a personal loan for home improvement means you don’t have to use your home as collateral for renovations. This is an important consideration because if you were to use a secured loan and fail to make payments, there is the possibility the lender could foreclose. This makes home equity loans riskier for borrowers, and even though they have the potential to be larger than personal loans since it’s based on your house’s market value (with the mortgage subtracted) the risk often isn’t worth it. A personal loan is an unsecured loan that does not require collateral.
Quick Tips to Save on Your Remodel
The average kitchen renovation in Canada can cost about $30,000, but as you can imagine, that amount can change depending on a few things. If you’re moving things around, costs go up if there is a need for a plumber to move pipes or an electrician to relocate wiring.
As a general rule with most home renovation projects, if you want to save money then don’t move things that might require a plumber or electrician to get involved. Where the kitchen is concerned, custom cabinets increase your costs.
The types and brands of appliances you choose, if replacing any, can have a significant impact on your remodel as well.
Many professionals will advise with a remodel, especially when it comes to your kitchen or bathroom, is to take the opportunity to increase efficiency. Should you really want to save, consider doing your own demolition. It doesn’t require any special skills and hauling the garbage yourself is easy. But it must be done with care, as you don’t want to cut through a live wire or take out a load bearing wall. One other suggestion to help save is to speak with your contractor about whether they have any used material that you can recycle. They might have used or leftover tile, hardwood floor or other materials that could save you a bundle.
Ultimately, the choice is yours whether a home equity loan or personal loan for improvement is going to fit with your budget and lifestyle.