Renovate your home through loan guide, Property finance tips, Online house money lending advice
Renovate Your Home Through Loan
21 Oct 2021
Making home improvements is an excellent way of increasing your home’s value. However, these improvements can add up to become costly. So, when planning home improvements, you need to think about costs. Most people dig into their savings to finance home renovation but end up burning through all the cash. Conversely, when you apply for a home renovation loan, you have a fixed budget.
This blog post will explain the importance of getting a loan for home renovation, even when you have the money to pay for its costs. To ensure you get a favourable loan, you need to check interest rates, and you can do this by following the link: lightningloans.com.au.
Why Take a Loan For Home Renovation
Taking a loan for renovating your home is important because it’s a commitment that forces you to stay within a set budget and prevents you from going overboard. You know that if you exceed your loan amount, you have to pay twice the cost; as a result, you consider the necessity of each improvement carefully. Here are several reasons to consider a loan for home renovation.
1. Loans Set a Budget
When you are shopping for home renovation, you often lose track of your budget while chasing the next best thing. Even the best of us make this mistake, and sticking to a budget can be heart-breaking when you see a wonderful piece of furniture for your living room.
However, when you take out a loan, you know that you have to pay interest. So, it’s best to break your home renovation budget in half when you are asking for a loan. For example, if the interest rate on your loan is 20%, you should cut down your budget by the same percentage.
Therefore, you can make principal and interest payments through a balloon payment. This keeps your assets higher than liabilities, and your cash in hand is safe.
2. Prevents You From Burning Through Your Savings
If you have $10,000 in your savings account to cover all your planned home renovation, there is no need to burn through it. You can take out a loan equal to 20% of your savings. The reason for cutting down your home renovation budget by 20% is the ability to pay off your loan amount and interest rate through balloon payments.
If your lending institution doesn’t charge you an interest rate when you pay off your loan amount, it will charge you for early payments.
Make sure you have a deal with your lending institution for a 1% early charges fee before you take a loan. This will secure your finances, and you can renovate your home.
Taking out a loan prevents you from burning through your savings. For example, the $10,000 in your savings account will keep earning interest over the years. In the meantime, you will pay off your loan about $8,000 (minus 20%).
Moreover, you will keep adding more to your savings account because your loan amount is low, and so are your monthly payments. When your savings increase 1.5 times, you can pay the remaining loan amount through balloon payment.
3. No Need for Collateral
Loans are of two types, secured and unsecured. Secured loans are backed by an asset equal to the amount of money you borrowed from the bank. Taking collateral against loans is a way for banks to secure their payment. In the worst-case scenario, your bank will sell your collateral to recover its remaining amount.
However, home renovation loans are different. You don’t need to keep collateral with the bank because the amount of loan is relatively small.
Your bank will finance you up to a limit, and it’s a good thing because you won’t overspend on home renovation. This limit keeps your budget under control and curbs any impulse purchases.
4. Renovation Loan As An Investment
Most real estate investors take loans for home renovation as an investment. They know their property’s value will increase through renovation. So, why put money from your pocket and take a huge risk? Since home renovation isn’t cheap, you won’t be putting $100 from your pocket.
Therefore, it’s best to seek renovation loans when you plan to sell your property. Since you don’t need to keep collateral, make a convenient payment schedule and keep your savings for your next purchase. For example, you have $500,000 stored separately to buy a property worth $1 million knowing its value will double over two years.
The renovation cost of your current property is $15,000. Instead of burning through your savings, you should take out a loan. When the renovation is complete, you can sell your property and buy a new one with your $500,000 savings. Keep making small monthly payments against your loan.
When your new home values at $2 million, you can sell it and buy two different properties in two years. Live in one house and put the other one on rent. You can make your loan payments through the rental income.
This pro-level strategy is used by expert real estate investors, and that’s how they become millionaires. Remember, a loan taken as an investment becomes an asset in the future, while a loan as liability becomes an obstacle to success.
Renovate your home through loan – Final Thoughts
Loans might seem scary and responsible, but everything will work out in your favour if you have a plan. Many people request loans. So much so that banks have to turn down potential candidates and finance the most profitable customers. So, don’t stress over a loan for renovation. Instead, follow the advice above, and you will accumulate more assets than debt.
Comments on this guide to renovate your home through loan article are welcome.
Backwater House, Norfolk, East England, UK
Design: Platform 5 Architects
photo © Alan Williams
Backwater House on the Norfolk Broads
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