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Home Improvement Loan Explained

Feb 20, 2008
People are very proud of their homes and spend a lot of time ensuring that they look modern or stylish. They will often give the lounge a makeover or refurbish the kitchen or bathroom. Sometimes they may even decide to remodel the house by extending an existing room or adding another room. You can make a good amount of money if you do a home improvement project right but this is not always the primary motivation for starting such a project. Many people like the challenge of starting a project and seeing it through to completion. They appreciate getting new skills that are learned along the way. Above all, they want to improve there living conditions and want a bit of luxury in their lives. However all this costs money and in most cases, people don't have the money needed to finance a large or medium improvement project. There are many alternatives when comes to the finding the finance, one of the popular one's is the home improvement loan. This article will discuss some of the frequently asked questions about these types of loans.

What is a home improvement loan ?

A home improvement loan is a loan of money to you from a lending institution. It is normally secured by the house that you are remodeling. Once you have this money you can do whatever you like with it.

Why do you need a home improvement loan ?

If you have the money to finance a project then you don't need a loan, however most people are not in this fortunate position. As already mentioned, a home improvement loan can be used to cover the costs of any kind of refurbishment or remodel project that you may have conceived. This could be a large project, like a new bedroom or family room. Or something more modest like replacing a tired looking kitchen suite or updating the bathroom fittings and fixtures. With this said, there is normally an upper and lower limit to the amount you can borrow based on various criteria that will be covered in the next question.

How much money can I borrow ?

This depends on a number of things, notably the value of the home, the amount that the project will cost and your ability to pay back the loan. Most lending institutions sell products that use the loan to value ratio as a benchmark. This means that they will generally only lend around 15% of the total value of the property to a person planning a home improvement project.

How long can I repay the home improvement loan ?

Of course this is up to the company and loan that you have decided on. In general, most of these types of loans will extend from 5 to 25 years in length. Some may have options to pay off early too.

What is the right home improvement loan company for me ?

In most cases, people look at the interest rate that they will have to pay for the particular loan product. They can also look at the reputation of the particular lender although once you have the money this doesn't really matter.

You should also consider any extra costs that will come with the product, like an application fee and appraisal costs. Check all the fine details for any penalty clauses such as late payment or early repayment penalties. Above all, go for a loan that suits your requirements as there are so many to choose from that you can afford to be picky.
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Find more tips on home remodeling including selecting a competitive home improvement loan on your next project.
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