What Is a Home Improvement Loan?
If you own a home, chances are you can think of a few things that need repairing or replacing. From something as small as worn-out carpet to complete remodeling jobs, home improvements are part of almost every homeowner's ultimate plan. Because many of these repairs can be costly, people often consider taking out a home improvement loan to fund the expenses of their renovations.
Function
To receive a home improvement loan, as the name suggests, the loan funds must be used to make improvements to a piece of property that is owned by the borrower. Any modifications, repairs or renovations that are intended should also increase the overall value of the property. Remodeling projects, room additions and pool installations are among the types of home improvements.
Types
A home improvement loan is an unsecured (meaning the borrower does not provide any collateral) personal loan and is typically designed for short-term use. Although many homeowners consider using the equity in their home (called a home equity loan) to complete their home improvements, a home improvement loan does not require the homeowner to tap into her home's equity.
Benefits
The fact that a home improvement loan does not require a homeowner to use his equity is what borrowers often find most attractive. In addition, home improvement loans often take less time to process than home equity loans. The interest rate is usually fixed and, depending on the length of the loan, typically offers low monthly payments that are paid off in an average of 3 to 5 years.
Considerations
When comparing your options for financing your home improvements, make sure you understand that the interest you pay on a home improvement loan is not tax-deductible. If, on the other hand, you opt for a home equity loan, the interest you pay on that loan is indeed tax-deductible.
Warning
Because a home improvement loan is unsecured, it tends to attract borrowers with less than perfect credit. As a result, many lenders may not promote these types of loans and may try to persuade you to move over to a home equity loan. Depending upon your specific needs, a home improvement loan may or may not be the best choice for you, so make sure you consider all of your options before committing.
Tags: improvement loan, home improvement, home equity, home improvement loan, home improvements, equity loan
