4 Types of Home Repair Loans
July 15, 2019
There comes a time when everyone runs into the need to fix their home – whether it’s fixing a leaky roof or renovating their bathroom. While home repairs are typically worth the cost, fixing up your home can sometimes take a big investment. We know and understand that it’s not always possible to pay for your home repair costs in cash and that’s why we want to let you know the types of loans that are available to help out.
1. Home Improvement Loans
Home improvement loans are a type of personal loan that can be used to pay for home repairs and renovations. Like other types of personal loans, these are unsecured loans that can be obtained based on your creditworthiness. These loans do not require collateral and can be acquired more easily than their secured counterparts.
Home improvement loans differ from other loans in a few ways. Firstly, being a type of personal loan, they come with a fixed interest rate and you can expect your monthly payment to stay the same for the entirety of the borrowing period.
Additionally, there’s more freedom involved with this type of home repair loan because it is not limited by the amount of available equity that you have in your home.
2. Home Equity Loans
A home equity loan is a loan that relies on the amount of equity that you have in your home and allows you to borrow against it. It can also be known as a “second mortgage.” People typically obtain home equity loans to help with major home repairs such as repairing their roof or adding a new room to the house.
One advantage of a home equity loan – and the reason why they’re used for major home repairs – is that they can be used to borrow more money than a personal loan can, as long as you have strong equity in your home. Additionally, with a home equity loan you receive a lump sum at a fixed interest rate; meaning that even if interest rates rise during the term of the loan, your monthly payment will stay the same. These loans can have a longer repayment time than home improvement loans, coming in at anywhere from five to twenty years, and they tend to have lower interest rates as well. Know that the amount that you can borrow with this type of loan is often limited to eighty-percent of the equity of the home.
3. Home Equity Line of Credit
A home equity line of credit (HELOC) is similar to a home equity loan in that you borrow against the equity in your home to obtain one. However, with a HELOC you receive a line of credit rather than a set amount of money. While you may be eligible for a high line of credit, you are only charged interest on the amount that you’ve taken out.
Unlike home improvement loans, HELOC’s depend on your credit score and therefore can be harder to obtain for someone who doesn’t have a good score. Additionally, a HELOC is limited to the amount of equity that you have in your home.
There are two HELOC options depending on how you want to repay your credit over time. The first type is an interest-only draw period, meaning that during your draw period your minimum monthly only include interest. The second type is an interest and principal draw period, meaning that during your draw period your minimum monthly payments include both the principal and interest; while this type of HELOC does include higher monthly payments, you can pay off your loan faster this way. It is important to know that the interest rate on a HELOC is variable, meaning that monthly payments will not remain the same for the duration of your payment period; payments can be higher or lower compared with the initial rate.
4. Personal Loan
A personal loan is a type of installment loan, meaning you borrow a predetermined amount of money and pay it back with interest in fixed monthly installments. This means that you can expect to pay the same amount each month for the life of the loan, which typically ranges from one to seven years. These loans are very similar to home improvement loans and will most likely have a higher interest rate than a home equity loan or a HELOC.
An advantage of personal loans is that they are typically unsecured loans, meaning that your credit score won’t impact your ability to obtain one and you won’t have to put your home up as collateral to get one, either. This could be a good option for you if it’s less expensive to take out a personal loan than any other type of home repair loan. While credit score doesn’t impact your ability to obtain a personal loan, it’s helpful to know that banks and lenders tend to offer loans with lower interest rates to those with good credit.
There are a variety of options to choose from when it comes to picking a loan to help you cover your home repair expenses and each one comes with a variety of advantages and disadvantages. If you’re interested in using a personal loan for your home repair needs, chat with the expert team at Illinois Lending or apply for one today. We’re happy to help you on your financial journey.