Benefits and Drawbacks of Home Improvement Loans

A home-owner may make use of a home improvement loan to facilitate the renovation of the property. In the real estate market, the condition of the property determines its worth. It is crucial to recognise the nature of home improvement loans to distinguish the benefits and shortcomings of the loans.

Features of the Mortgage

A home-owner with equity in the home may avail of a home improvement loan by offering the home as collateral. If you do not have sufficient equity in the property, you may pledge the funds in your savings account, stock certificates or an item of significant value.

The location, size and the condition of the property are key factors in determining the amount, interest rate and term of the loan. You may not get very favourable terms for your home improvement mortgage, if your property is very old. However, a property of historical significance may let you pick up an advantageous product. Additionally, a decent credit history is essential for securing a mortgage to your advantage.


Lenders are willing to present a wide selection of home improvement packages as values of renovated homes figure high on the curve of real estate prices. You may obtain a substantial credit at a low interest rate. You can institute a major overhaul on the property and raise its worth considerably. In addition, if you do not pledge the home against the mortgage, you may sell off the property at a greatly higher price than the combined cost of the home and the mortgage.

Drawbacks of the Product

The approval process for a home improvement loan takes a lot of time. You may decide to apply for a mortgage when the interest rates for these products are low but you may not avail of the rate by the time you qualify for the loan. The rates might have gone up due to fluctuating market conditions. This can make the monthly expenses on the mortgage unmanageable.

Individuals with a less than favourable credit history may not obtain a loan with attractive rates. If you do not have equity in the home, your lender will secure the loan against your monetary assets and will freeze them. You cannot use the funds in case of an emergency. A lender may agree to an unsecured loan for refurbishing your property. However, the rates for these are prohibitively high.

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