Itching for a new kitchen? Need to weatherproof your roof? A personal loan could get you the cash you need to make that long-awaited upgrade or much-needed fix to your home. Here are a few things to consider before you go for the funds.
Security. Because Personal Loans are most often unsecured, you’ll likely pay a higher interest rate than with a secured loan (such as HELOC). If you don’t want your home to be used as collateral (as with HELOCs), a Personal Loan is a good option.
Type of Renovation. If your potential renovation is on the more expensive side, a HELOC might be a better option if the project will increase the value of your home. For most HELOCs, you need a substantial amount of equity in your home (usually around 20% or more). Consider a personal loan if the project is on the smaller side.
HELOC? So, about that HELOC (which stands for Home Equity Line of Credit) — as mentioned, these usually come with lower interest rates than Personal Loans, and are stretched out over a longer term usually ranging from 5-20 years. In the end, you might end up paying more interest on a longer term HELOC than with a Personal Loan. Note: HELOCs interest rates are often tax deductible.[1]
Cash-Out Refi. Another option to consider is a cash-out refinance. You’ll get a new mortgage with new terms (and possibly a lower interest rate), while being able to get cash out by borrowing against the equity in your home. If you need $10,000 for a repair, for example, you may be able to get the cash and lower your monthly payments through new mortgage terms and rates, potentially resulting in overall savings. But be sure to look at the overall fees and costs in the loan estimate before choosing this option, as it could end up being more expensive and simply not worth it.
Necessity. Weatherproofing a leaking roof is a necessary repair, but that shiny new kitchen remodel you’ve been eyeing? Maybe that can wait. Start saving for purchases that aren’t truly necessary in the short-term and enjoy the sweet fruits of your labor (and discipline) down the road.
[1] Laurel Road does not provide tax advice. Please consult a tax advisor regarding the deductibility of interest and charges for your loan.
