A home loan can be taken either as a separate consumer loan or as part of a home loan. The best option to finance a renovation is often tailor-made.
It is always a good idea to compete with the market to find the best option for you.
Although a home improvement loan is often referred to as a category loan, it is a regular consumer loan that can be applied for or unsecured. However, a home loan is a bit more special than a typical consumer loan, because in some cases it can be incorporated into a home loan.
1. Unsecured loan for renovation
If you do not have your own real estate as collateral for a loan, you can apply for a home loan unsecured. Unsecured loans are strongly linked to financial services companies on the Internet, but home banks also provide unsecured loans. However, banks do not provide very large unsecured loans. The finance company, in turn, can obtain large unsecured loans for renovation.
An unsecured home loan is best suited for smaller surface repairs and situations where you want to pay off your loan quickly and need money quickly in your account. If you pay more than one home loan at the same time, you can combine the loans into one loan. Combining loans simplifies financial management and saves on loan management costs. Learn more about combining loans.
- An unsecured loan is best suited for smaller renovations that require additional financing quickly.
- The average cost of an unsecured loan is on average higher than that of a secured loan.
- The actual annual interest rate on an unsecured loan from a bank is usually in the range of 10%.
2. Secured loan for renovation
When applying for a secured loan, the borrower places his or her property as security for the loan. Larger home renovation loans often set up a home for renovation as collateral for the loan.
A secured renovation loan is well suited for larger renovations. The terms of the loan are more favorable when the property is secured by a security. For smaller renovations, it is worthwhile for the borrower to consider whether it is wise to take a regular consumer loan as collateral, as the collateral could be used for larger loans or loans where collateral is necessary.
By competing for loans, you can also find an unsecured loan that matches the cost of a secured loan from a bank. It is definitely worthwhile to take advantage of an affordable unsecured loan offer, as your own summer cottage or home as a collateral for your loan will always bring extra worry.
- It’s a good idea to take out a secured consumer loan for a major renovation when it comes to a major home improvement.
- A secured renovation loan is usually cheaper than an unsecured loan with a total cost. The interest margin on a secured loan from a bank is usually in the range of 5%.
- However, it is always worthwhile to compete for loans and credits. With increased competition, you can find an unsecured loan that is cheaper than the total cost of a secured loan.
3. Combining a home loan with a home loan
In some banks, a renovation loan can be tied to a home loan, as the renovation covers work related to home renovation. Renovations that can be considered as overhauls include major kitchen renovations or renovation of dwelling plumbing.
When a home loan is part of a home loan, it is paid at the reference rate of the home loan. The repair loan will only be added to the final debt.
You can tie a home loan to an existing home loan or withdraw it when applying for a home loan. When a home improvement loan is linked to an existing home loan, interest rates are reviewed again, which can lead to an update of the loan terms. Thus, updating loan terms can lead to better or worse loan conditions, depending on the general interest rate and financial situation.
- With low mortgage rates on current mortgages, the mortgage is predominantly paid only by the bank.
- In addition, banks are trying to attract new mortgage applicants at ever-lower rates, which makes tying a home loan a very attractive option.
- Mortgage margins are currently slightly below or above 1%. The margin for the most favorable consumer credit on the market is rarely 5% lower and may, at worst, be up to 50% for smaller loans.
- Combining a home loan with a home loan should always be considered when planning to own a home.
- A renovated homeowner is a good investment and combining a homeowner loan with low mortgage rates will make the investment even more profitable.
4. Combine mortgage and corporate loan for major repairs
Major renovations of housing associations are usually financed by a corporate loan. This loan is repaid monthly by the shareholders of the housing association. You can also pay off your share at once by applying for a secured home loan. Even though you are less likely to apply for a secured home loan to pay off a corporate loan, you should always check if there is a loan on the market that has better terms than a corporate loan.
Summary – What to consider when applying for a home improvement loan?
- Make a careful estimate of the cost of the renovation and determine your solvency.
- Compete in the market for consumer credit.
- If you are already paying on a mortgage, check with your bank to see if the home loan can be combined with your home loan.
Applying for a loan can be accepted from another bank without having to change your customer relationship with the lending bank. Find the cheapest home improvement loan on the market with credit counter.