Comparing Personal Loans to Home Equity Loans
When it comes to making improvements to your home, is it wiser to take a home equity loan, or to take out a personal loan?
There are many different arguments for both transactions.
In either case, the interest rate is an important factor as well as the amount and time of the loan. Obviously, you want to get the best deal on your loan and make the most of the money borrowed. Let’s take a look at the pros and cons of each type of loan and what would fit your needs best.
When it comes to home improvements the rule of thumb is that you want to get more money back than what you spent on the upgrades when it comes time to sell your house. You want to profit on your enhancements. This has a few stipulations. If you are going to be in your home for quite some time then the home improvements will probably be outdated by the time it comes to sell your home.
Major structural changes will add value, but tastes change over the years and what is popular now will not be in ten to fifteen years. So, cosmetic changes will probably not give you a major return on your investment. If you are planning on being there for a long period of time, make the changes you want and enjoy your house. If you are planning on selling in the short term, then you must spend your money wisely and try to make upgrades that are neutral and will appeal to a larger amount of people’s tastes.
In general a home equity loan can usually afford the borrower a larger amount of money than a personal loan. If you are making major changes to your house, this can be the right way to go. You mortgage holder will be more willing to lend you a larger sum, because they know that the value of your home will increase. This is a good way to go if you are making major structural changes such as additions to your dwelling. The problem with this is that you have to use the money for home improvements only.
If you are just remodeling, a personal loan is probably the better bet. Remodeling the kitchen is usually within the limits of a personal loan. Once you have completed paying off the loan for the kitchen, it is time to take out another loan to redo the bedroom and bathrooms.
This gives you the option to progress your embellishments over a longer period of time and enables you to keep up with the latest trends in home remodeling. A true benefit to taking out a personal loan is the positive affect on your credit rating. Paying of smaller loans in a quicker amount of time will increase your borrowing power in the future.
When it does become time to sell your house, the home equity loan will provide you with a more accurate summary of whether your investment was profitable or not. When you try to keep track of the personal loans over the period of time you have spent upgrading your house, you can lose track of what you actually spent. You may have used some of the personal loan money to pay for braces or to fix the car and over time this can be hard to track unless you are very good at keeping track of your finances. Just make sure that you enjoy your improvements without losing money on your upgrades.