Most of us neglect to renovate our homes simply because of the cost it entails. But the cost is incomparable to the value it adds to your home. Fortunately, several home renovation financing options will allow you to complete a home improvement project without going broke. Read more about home renovations.
Whether you are looking forward to:
- adding a new wing to a residential space house
- painting your home’s walls, adding new flooring
- building a new deck
- buffing up a bathroom
You can easily get things done with the financing options listed below.
Let’s have a look.
Table of Contents
1. Home Improvement/equity Loan
This is one of the most common ways of arranging money for renovations. In this method of financing, you can borrow money against your home value.
Note that the current property value is considered in a home equity loan and not its post-renovation value. Moreover, suppose you have a home with no mortgage insurance. In that case, your loan value will be 80 percent of the property’s value.
2. Credit Card
If the cost of your home improvement isn’t high, you can easily meet the expense through a credit card. However, you need to be careful about your credit limit.
This finance option is ideal for making small expenses like buying raw material, making payments to the service provider, etc. It’s one of the easiest financing options, but only if you have the required credit card limit for making the payments.
3. Personal Loan
This is another great option for financing your home improvement work. Individuals can get a personal loan from a financial institution or a bank. Money is lent to individuals based on their monthly income and repayment capacity.
However, this option comes with a limitation. The limit and loan parameters differ from one bank to another. Ideally, the maximum limit of a personal loan is INR 30 lakhs which is offered for a maximum of six years. Individuals with low monthly income can’t avail of loans of a higher amount.
4. Cash Payments
Cash payment is one of the most preferred and prevalent home renovation financing options. Cash can be withdrawn from your bank account to pay the service provider and others.
Though it is one of the most viable financing options, it comes with certain limitations. First, money can be spent up to the limit available in the savings account. Secondly, you’ll lose a significant part of your savings.
5. Fixed Deposits
Do you have a fixed deposit account that’ll mature soon? If yes, you can consider using that fund for home improvement. If you aren’t willing to borrow the loan, you can withdraw your FD funds before maturity.
There is another facility available with your fixed deposit that’ll help you borrow a loan against a fixed deposit. In that case, you’ll miss the interest earnings on the fixed deposits. Loans against fixed deposits can be availed at up to 90% of their value. This is one of the best options to arrange funds for home improvement.
6. Homeowner Mortgage
If you’re looking to give your home a major makeover, a homeowner mortgage will be a good option. The best thing about this option is that the cost of a home makeover will spread over a long period, making it easy for you to afford the expense.
Note that the mortgage amount can go up to 90 percent of the home’s value. To find the best deal, compare the mortgage rates and deals offered by various financial institutions and zero in on the one most suitable for you.
7. Loan Against Property
The renovation will almost always be costly. Hence, borrowing a loan against your property is always a good option. The borrower’s property is taken as collateral in this type of loan. A significant advantage of a loan against property is that it is offered at a low-interest rate compared to other loan types.
Moreover, the repayment tenure can be as high as 15 years, making it easy for you to repay the loan. This financing option includes several benefits such as high loan eligibility, low-interest rate, longer tenure and more.
But like other financing options, it too comes with a drawback. If the borrower fails to pay back the loan amount, the financial institutions reserve the right to take over or sell the property to recover the amount.
8. Zero-interest Credit Card
This is an ideal financing option for minor renovations. Moreover, it can be paid off easily and quickly. The best thing is that you won’t have to bear any interest when using a credit card for payments.
Did you know that you can also find credit cards with a zero-interest for a period of up to 18 months? However, take care to maintain a consistent repayment schedule to clear the debt before the due date. This will help you make the most of this payment method.
9. Line of Credit
A line of credit is perfect for long-term or ongoing renovations. In this form of financing, the borrower must pay the interest on the borrowed funds. Apply for a revolving credit line so that you can use this credit option whenever needed (up to the approved limit).
Once the balance is paid off, you can re-borrow the funds to the approved limit. Moreover, you won’t have to reapply for the credit. Make sure to go through the terms of serviceability before applying for the credit.
10. Loan Against Life Insurance Policy
Heads up: this is a less preferred (yet easy to obtain) option to arrange funds for home renovation. Simply put, if you have a life insurance policy, you can take a loan against it. The interest rate of this loan is comparatively low, and the loan amount depends on the amount of life insurance policy issued to the borrower.
One of the greatest advantages of the above-listed financing options is that they are available almost instantly – within a week or so. However, you may need to wait for 15 days or more for approval of a line of credit or home-equity-based loan. We advise you to map the risks and compare the terms and conditions of each financing option before signing up for a finance option.