QandAs: Loans

What is a Home Improvement Loan?

Answer:
A home improvement loan is money that a mortgage

lender or bank lends a homeowner to complete home renovations or remodeling projects. Home improvement loans are easier to qualify for; and since these types of loans usually include low fixed rates, they are a smarter choice than credit cards. Home improvement loans have several benefits, and one major disadvantage. The loan can improve a property.

In return, the property's value increases, and this is a surefire way to increase or build equity. Plus, the majority of home improvement loans have short terms, unlike credit cards that can take years to payoff.

The only problem with a home improvement loan is that many homeowners pledge their property as collateral. In other words, if a homeowner is unable to repay the balance, the lender can claim their property. While this approach improves the odds of qualifying for the loan, some homeowners get greedy and borrow too much. The two common types of home improvement loans are home equity loans and home equity lines of credit . Home equity loans are preferred because the terms and rates are usually fixed, and borrowers can estimate a payoff date. On the other hand, home equity lines of credit are very similar to credit cards. Borrowers do not receive a one-time lump sum of money. Rather, homeowners borrow from the line of credit on an as-needed basis for a period of up to ten years, and use the money for a variety of home improvement projects. Be careful with this type of home improvement loan. Home equity lines of credit have variable rates and unpredictable monthly payments.

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