While each loan option will give you a way to pay for your home improvement project, some may work better than others. The cost of your project, how much equity you have in your home, whether you already own the property and your credit are some of the factors that will influence which is best for your situation.
Home renovations loans are ideal for those who have more worth in their homes than what is owed on the mortgage.
Funded by the equity in your home and received in a lump sum, a home renovations loan usually has a fixed interest rate and is repaid between five and 30 years. Lenders generally allow you to borrow up to 85 percent of your home’s equity.
You can apply for a home renovations loan through banks, credit unions or online lenders. Interest rates and overall terms offered depend on your creditworthiness.
Because the loan is secured by your home, you typically get lower interest rates when using a loan for a renovation. You can also potentially write off the interest at tax time — if the funds are all used for home improvement.
A major drawback is that defaulting on the loan could come with some serious consequences, including foreclosure.