What to know before taking out a home renovation loan

adminonFebruary 16, 2023February 19, 2023Leave a Comment

home renovation loan

Many people believe that investing in your home is never a bad idea. One way in which you can invest in your property is through a home renovation loan. Home renovation loans can either be an important tool for leveraging value-adding projects or provide you the means of getting emergency repairs taken care of. Whatever the case, it is important to know how you can best use a home renovation loan to improve your property.

Ways to Finance Home Renovation Loans

When it comes to securing financing for home improvements, there are several instruments that can help you get the funding you need:

Home Equity Line of Credit (HELOC) – this is a revolving line of credit (works similar to a credit card) that uses the maximum value of your home’s equity as collateral. You can use this line of credit for anything, from paying for a wedding to financing a truck, but it makes a truly outstanding option for home renovation, as the borrowed funds will be used to add value to your property. As the maximum value of your home will likely be significant, this may be a good financing option if you have an ambitious remodeling project to tackle.
Home Equity Loan – this loan differs from a HELOC in that it does not revolve each month. However, you should see lower interest rates than with a HELOC. The amount you qualify for in a home equity loan will be based on the difference between your home’s maximum value and the remainder of your mortgage. Essentially, you will qualify for a bigger home equity loan if you have been paying on your house for longer. You can take out all or part of the home equity loan that you qualify for. This may be a good option for renovation projects in which you need a set amount of cash to complete.
Personal Loan – if your home equity options are not appealing, there is always the possibility of taking out a personal loan to complete your home renovation. While the interest rates will be higher for this product, it can be a good option for smaller projects that you plan on completing and paying for quickly.

Home Renovation Loans are Important for Real Estate Investors

Home renovation project

When the goal is to buy a fixer-upper, make a series of upgrades over the course of three to six months, and then sell at a substantial profit, a home renovation loan is not only good–it might be necessary. Using this method, a home renovation loan can be used to finance all of the home improvements and quickly be paid with the capital gains from the house sale.

The following scenario illustrates how real estate investors can use this “house flipping” scenario to make money:

Get a fixer-upper at a bargain price
Secure a home renovation loan
Perform value-adding projects, such as modernizing the kitchen, improving the house siding material, or making the bathroom more functional
Sell the renovated house at a substantially higher price than which it was purchased, using the capital gains to pay down the home improvement loan

Home Renovation Loans Should be Used to Improve Safety and Livability

home renovation project progress

Whenever livability and safety are compromised, taking out a home renovation loan is a great way to get the building up to safe living standards. For example, if your dilapidated asphalt roof is leaking heavily, it may be worthwhile to look at hail resistant shingles cost and consider the benefits of taking out a loan. After all, while the cost of the loan is an important factor, subsequent repairs required from continued neglect or health problems arising from substandard living may ultimately be more expensive than the cost of financing.

Another scenario in which taking out a home renovation loan might be a good idea is when the project is relatively minor in cost but can lead to savings. Such a scenario may exist if the doors and windows are turnstiles for exterior air, so the small home renovation loan you take out to install a new window and garage door trim will be paid for through the annual savings in heating and air conditioning costs.

If you want to add value to your home or make an investment in a higher quality of living, a home renovation loan can be a great idea. Home equity lines of credit, home equity loans, and personal loans are some viable products that can help you meet your home renovation needs. While all have their unique appeals, be sure to have a clear understanding of your goals and what the renovation project entails prior to making a decision on how to finance it.

Matt Lee is the owner of the Innovative Building Materials blog and a content writer for the building materials industry. He is focused on helping fellow homeowners, contractors, and architects discover materials and methods of construction that save money, improve energy efficiency, and increase property value.

Endowment life insurance comparison

An endowment life insurance comparison is unlikely to be obtained from your insurance agent around the corner. Here only an online comparison can help to determine the best conditions.

Endowment life insurance online

Many think endowment life insurance is an outdated model in today's world. With the endowment life insurance, however, the financial risk of a family is absorbed, if the main earner suddenly dies.

Especially for couples with children, endowment insurance is existentially indispensable. At the same time, the endowment policy still saves a small amount of assets that can be used in old age, such as when you start receiving pension payments.

Quick life insurance comparison on the net

The many advantages of endowment life insurance are obvious even today. In addition to protecting the family, endowment life insurance is the first choice for home builders. If the mortgage is secured with endowment life insurance, for example, the amount of interest payable is often significantly lower. Thus, the insured succeeds in a double profit, in that the family is secured and later, in the worst case, does not have to move out of the familiar house. Nevertheless, the insured person can of course use the saved amount himself at the specified time. An endowment life insurance comparison should therefore be carried out before any major change in life circumstances. Most employees get a shock when they reach retirement age how small their pension actually is in relation to their previous salary. By comparing endowment life insurance, this problem can also be mitigated ahead of time.

If the capital life insurance is paid out then exactly to entrance of the pension age, the insured one has the possibility of bringing its own house once again on the newest conditions and of carrying out due renovations. Thus, there are fewer unexpected costs when there is a hole in the budget anyway due to low pension payments. Especially on the Internet, an endowment insurance comparison is quick and easy, and the information it contains can be important for your future. The local bank or insurance agent also offers life insurance, but his insurance comparison is extremely limited, as he can only offer his in-house products.

Support costs and ancillary costs are low

Once life insurance has been purchased, as the policyholder, you don't have to worry about anything over the years. If you really have questions about your life insurance, you can now easily clarify them by phone or email. Therefore, the conclusion of the contract after an endowment insurance comparison via the Internet is nowadays the cheapest and easiest solution for you.

Capital life insurance comparison

After completely filling out the form, you will receive the evaluation of your insurance comparison and a contact person in your area will get in touch with you.

A little can go a long way. Now that you have a mortgage it’s important to understand a little about compound interest. When you save money you earn interest, not only on the original amount but also on the interest that you’ve earned. What few understand is that this “interest on interest” grows exponentially.

It’s the same, but turned upside down, with the mortgage. The more you can pay off, the less interest you will be charged and, just as each little payment on your savings adds to the “interest on interest” so each little payment subtracts to the interest that the bank can charge.

With that in mind, there are few things that you can do get to get rid of the mortgage sooner. And keep in mind that a little will potentially make a huge difference in the end.

Pay more each month (perhaps only one coffee a day).

That’s pretty obvious. Over the lifespan of a mortgage, the savings can be significant. Pay an extra $300 per month (that’s about a daily cup of coffee for 2 people) and you’ll decrease your $500,000 mortgage from 30 years to 25 years and you’ll save over $77,000. What I’m saying is that that extra cup of coffee every day for two people costs around that much. You’re welcome to confirm these figures at https://sorted.org.nz, but trust me, compound interest is mind-boggling. Think again whether you should not sacrifice that second cup of take-away coffee.

You can also find other ways of adding to the repayments. Consider taking in a flatmate, or better even, purchase a property that has a separate unit.

Be flexible

Consider negotiating the entire mortgage at a one fixed rate, spit it into smaller mortgages with various fixed rates, or even a portion of it at a variable interest rate. That makes your loan structure more flexible, especially if your needs change over time.

Pay fortnightly, not monthly

That’s again tied to the magic of compound interest. Without feeling it, you’re actually paying one additional fortnightly payment a year (the year has 12 months, but 26, not 24 fortnights). That could cut your $500,000 mortgage by around 4 years. In effect, you’re just paying a bit more. This is calculated at an interest rate of 4%. Again, you can verify these figures at https://sorted.org.nz.

Use your credit card

Banks offer an interest-free period for purchases on your credit card. As long as the repayment is made within a certain period (usually a few weeks) you don’t pay interest. Why not structure your credit card to use that interest-free portion to pay the mortgage. That way, every month (or fortnight if you follow our previous advice), you get a portion of your repayments interest-free.

Play a lump sum when you can

If you come into some money, be that an inheritance, an asset sale or you come into some money in another way, consider putting that towards your mortgage.

Some fixed-term mortgages allow a penalty-free repayment of a certain percentage (usually around 5%). More to the second point above, if you’ve structured the mortgage with a portion on a variable interest rate then you can make repayments without penalties.

Lump-sum payments have two benefits: they reduce the principal about and you’re don’t have to not paying the interest portion of your lump sum, and your principal reduces, so you’re paying less interest in the future or, if you keep the repayments the same, you’re paying the loan off faster and you’re paying less overall.

Don’t be tempted to reduce repayments

When interest rates drop it can be tempting to reduce your mortgage repayments. Our advice is to keep the repayments the same. A drop in interest rates has the same effect as increasing payments and we’ve already seen how a small, nearly insignificant amount, can make a huge difference in the overall savings. Stick to your repayments and you’ll be rewarded at the end.

On our $500,000 mortgage, a drop in the interest rate of 0.5% will save $53,000 over 30 years, or reduce the term of the mortgage by 3 years.

Conclusion

Paying off a mortgage can seem daunting. You’re asked to commit to significant payments for 30 years. By increasing monthly payments you save significantly more that the total of that at the end of the term. Negotiating good interest rates, making lump-sum payments, or adding just that little bit in your regular (monthly or preferably fortnightly) payments will make a dent into that commitment. Some of those dents can be quite large. Our advice is to see every small reduction in interest payments as a win deserving of a fist-pump.

Talk to us for advice on your mortgage.

Ways to Finance Home Renovation Loans

Home Renovation Loans are Important for Real Estate Investors

Home Renovation Loans Should be Used to Improve Safety and Livability

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