Tara Mortgage Services Featured Blog: “Getting a Home Improvement Loan: Scenario by Scenario”

DHREA 01/05/2019
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(Every week we feature a blog from one of our fantastic affiliates, Tara Mortgage Services!)

Home improvement loans can be used for minor upgrades or major repairs or even complete remodels. Everything from replacing old plumbing to making your home more energy efficient are great reasons to consider a home improvement loan. With much better rates than a credit card and more options for repayment, homeowners just like you are discovering how easy it is to make those necessary home improvements.

Speaking of options, you have quite a few and there are some that are better than others depending on the situation.

For a clearer picture of which home improvement loan is right for you, please contact Tara Mortgage Services!

Home Improvement Loans by Scenario

Little or No Equity Scenarios

If you’re doing minor repairs: An unsecured loan would be your only option. An unsecured loan means that your home is not used as collateral. Since you have little to no equity AND the repairs would not increase the value of your property, there is essentially nothing to use as collateral.

While not the best scenario to be in, we understand that there are circumstances that require getting a home improvement loan. Despite having a higher interest rate than other home loans, it’s often a more attractive option than putting it on a credit card.

If you’re doing major repairs remodeling: A few options in this scenario. If your current mortgage rate is low, consider a second mortgage. In this case, you keep your current low-interest home loan. However, if your current home loan has a higher rate than what is now available to you, refinancing your loan under a renovation loan or a cash-out refi would be the way to go.

In the latter scenario, we would need an itemized repair and remodel plan so that we could better assess the “after-improvements value” of your home. Both of the loans mentioned above have lower interest rates than an unsecured home loan, but remember to still include closing costs.

Significant Amount of Equity Scenario

If you’re doing minor updates: Consider getting an unsecured loan or even a line of credit if you’re in this situation. With a loan this small, it’s often better to use the option that has low or no closing costs. Another benefit of a home equity line of credit (HELOC) is that you can reuse it if needed.

If you have major updates or remodeling: In this scenario, you’re eligible for several different home improvement loans. A HELOC, a second mortgage, or a cash-out refinance are ones to consider. Ultimately, what will determine the best option is your particular financial situation or the desired goal. For example, if you want to keep your current interest rate, get a HELOC or second mortgage.

While they have higher interest rates on these, you’ll save on closing costs. However, if you prefer cash flow or can lower your interest rate on your first mortgage, look into a cash-out refinance.

We’ve outlined the basic situations for choosing the right home improvement loans, but there are many more factors to consider. Contact Tara Mortgage Services today for a no-obligation consultation with a mortgage professional.  We look forward to helping you!

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