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Most home improvement mortgages are home equity loans. The lender will hold your equity in the home as collateral. If you have no equity in your home, it may be difficult to secure a mortgage for implementing the necessary improvement schemes. You need to look for alternative sources of collateral. You may even have to consider an unsecured loan.
You may offer the savings in your bank account as collateral to obtain a home improvement loan. The lender will freeze your savings account to allow you a loan against your savings. You cannot withdraw money from the account until you pay off the mortgage. You may also use stock certificates to secure the loan, as well. Like equity loans, a loan secured against your savings has low interest rates. It does have a shortcoming, though. The lender may seize your savings, if you default on the mortgage payments.
The lender will allow unsecured loans without the assurance of any kind of collateral. This makes unsecured loans typically more expensive. Higher interest rates may make the mortgage payments larger. Besides, the lender imposes many restrictions on the borrower. A borrower must have a high credit rating. The lender will require the homeowner have a high income compared to the total debts. In addition, the lender allows a shorter term for the loan, making the mortgage payments higher. The term of a home equity loan or a secured loan may be thirty years, whereas that for an unsecured loan ranges from seven to ten years.
A lender generally does not allow a large value for an unsecured loan as the borrower offers no guarantee of repayment. You may find it impracticable to cover the cost of the improvement plans in your home. A feasible alternative is using an unsecured credit line. You may apply for a credit line for a certain amount, and use the sum for the home improvement projects. After paying the balance on your card, you can qualify for a fresh sum. You may adopt this technique for instituting major enhancement schemes.
You may find a lender prepared to provide a second mortgage for your home. This is a risky option as it may create a large amount of debt. You may take up this method, if the other options are not viable.