As a homeowner, you may have a million project ideas to improve your living space. From remodeling the kitchen to replacing the living room floors to upgrading the primary bath, the list gets longer and longer. As easy as it is to come up with great interior design ideas, they can strain your budget. However, various options are available for homeowners needing help funding these home-related ideas.
Home equity loans and home improvement loans are the most popular options for funding home projects. Which one is better? What do they entail? In this article, we will outline the differences and similarities between the two loans to help you make the best financial decision.
What Is a Home Equity Loan?
A home equity loan, also known as a second mortgage, allows homeowners to borrow money using their home’s equity as collateral. Your home’s equity is how much your property is worth, not including the current mortgage value. This loan is considered a secured loan because it’s secured by your home, which the lender can foreclose if you fail to pay it back.
Home equity loans can be good options for homeowners who have paid off their mortgage and have good credit. Although they’re easy to obtain, they could lead to a never-ending cycle of debt. The terms on these loans vary but typically range from 5 to 30 years.
What Is a Home Improvement Loan?
Home improvement loans are straightforward—they allow you to fund any repairs or renovation projects. These loans are unsecured, meaning the lender takes most of the risk. Home improvement loans rely heavily on the borrower’s credit score and typically have shorter repayment terms since they have higher interest rates.
How Are They Similar?
Home equity and home improvement loans are similar because they fund home projects. Whichever loan you use will have the same steps after you’re approved. Both loans require you to repay the loan within the term period, and interest will accrue over time. These loans can also improve your home’s value with the changes you make.
Which One Is Better?
You might wonder which is better between a home equity loan and a home improvement loan.The answer depends on your financial situation. If you’re looking for a loan that is easier and faster to secure, you should inquire about a home improvement loan. However, if you have an excellent credit score and can afford to take out a second mortgage, you should inquire about a home equity loan.
Need to pay for an expensive repair or thinking about making home renovations? At Superior Financial, we offer home improvement loans that are suitable for anyone, no matter the credit score! Bring your dream home to life by contacting us today.
