4 Benefits and 2 drawbacks of home improvement loans

The home improvement loan is essentially a secured loan meaning the loan is backed by collateral and is exclusively used to improve the condition of any home from the point of view of practicality, aesthetics, and even comfort. The amount, time period, and interest rate of the home improvement loan vary from case to case. However, the factors that can help you determine ‘how much loan can I borrow for a mortgage’ on a home improvement loan are – location and size of the property, credit history, age and condition of the property.

 

Benefits of home improvement loans

The benefits of home improvement loans are given below:

1. Renovation: The first benefit is that with the help of this loan, one can easily renovate a property or a real estate. This renovation makes the house very comfortable and pleasant looking. However, the main benefit of this type of loan in the long run is that the market price of such a house remains on a very high point on the graph of real estate prices. The life of such an improvised property is also regarded to be long.

2. Flexibility: There are several lenders who are ready to offer a variety of terms and conditions for home loans. Therefore, it is possible to take advantage of a huge amount of credit with a low interest rate and longer duration.

3. Property sale: Apart from renovation and improvement, this loan can also be used for immediate sale of the property. However, this kind of sale can be done only when the property is not pledged as collateral.

4. Profitable: In the long run, an accurately calculated home improvement loan proves to be exceedingly profitable. It implies that the sales price of the home (that is increased as a result of the improvement), drastically exceeds the actual price of the property.

Drawbacks of home improvement loans

The 2 drawbacks of home improvement loans are given below:

1. Improbability: The interest rate of a home improvement loan helps borrower determine ‘how much loan can I borrow for a mortgage’ easily. However, during fluctuating market conditions, the interest rates of home improvement loans increase making the credit costlier. This means that the borrower’s monthly mortgage payment will increase.

2. Lengthy approval process: This type of loan has a very lengthy approval process. People with a poor credit history find it extremely difficult to qualify for such a loan.

Finally, a home improvement loan is a secured loan. This means that the liquidity of borrower’s asset freezes, as it has to be pledged as collateral to the mortgage lender. Therefore, borrower should determine ‘how much loan can I borrow for a mortgage’ beforehand so that he does not loose his home to foreclosure.

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