Painting, wallpapering, tiles for the kitchen, bathroom, floor for the living room, new equipment and repairs – renovation of an apartment costs several or even several thousand. Part or even the whole of such investment can be covered with funds from the loan. We suggest what type of loan for renovation to choose.
A loan for housing renovation is one of the many purposes of lending. However, it is necessary to properly match the type of loan to your needs. Therefore, before we decide to renovate an apartment or house using credit, it is worth first assessing how much money we will need. On this basis, we will determine what type of loan will be most favorable in a given situation.
It is worth noting that banks do not have special products in their offer for refurbishing an apartment or house. A popular renovation loan is simply the most common cash loan, which in its construction does not differ in any way from a loan for a television set or for any purpose.
Small renovation, small credit
In the event that we are planning a small investment that will consume from a few to a maximum of several thousand dollars, in such a situation the ideal solution will be a cash loan. A cash loan is the “fastest loan” because we often get the decision on obtaining it within a few hours, but certainly not longer than a few days. In addition, banks usually require a minimum of formalities, because proof and confirmation of income are often enough. However, such a loan is the most expensive option, because the interest rate on cash loans ranges from 13 to 16%, and the commission for granting them is usually around 5%. The maximum loan amount we can apply for is 50-60 thousand dollars, and the maximum repayment period is usually 10 years.
Big renovation, big credit
Renovation, which requires the involvement of a larger sum of money, is the most reasonable option to finance with a mortgage. However, to obtain it, we must own a property and most importantly – it cannot be mortgaged. By establishing collateral on the property, the bank is able to offer us a cheap loan. Unfortunately, to obtain it, be patient. It may take up to a month for the bank to process your application, and you need to prepare a cost estimate for renovation work and property valuation in advance. Additionally, after completing the renovation, you should document and settle the bank with the work done. For this it is enough to provide invoices or carry out inspections by a bank employee.
The mortgage secured loan has the lowest interest rate, from 4.00 to 5.50%. However, its granting involves some additional costs, e.g. for the aforementioned valuation of the property, which will be the collateral for the loan, and the cost of such valuation is $ 300-600. In addition, the establishment of a mortgage involves court fees for entry and deletion of a mortgage in the total amount of $ 300 and tax on civil law transactions.
Therefore, when taking out a mortgage, we must bear additional costs that will not arise with a cash loan. If we want to take a small amount of up to several thousand dollars, it may turn out that after the total cost calculation, the difference in interest will not be so large and it will be more advantageous to take out a cash loan. However, with amounts in the order of several dozen thousand dollars, the most favorable would be to take out a mortgage.
We have a mortgage loan between the mortgage and the cash loan, in the case of which we do not have to prepare a cost estimate or settle the work performed. Unlike a mortgage, which is granted for a specific purpose, the mortgage loan is granted for any purpose. As it is also secured by a mortgage, the bank requires a real estate appraisal. The mortgage loan has a slightly higher interest rate than a special-purpose loan. The lowest possible interest rate starts from 6.20%. Its amount is determined by the amount of the borrowed amount and the value of the property being the collateral.
When analyzing mortgage-secured products, it is worth paying attention to a longer repayment period than in the case of a cash loan. By giving the property as collateral, we can pay back the loan for up to 25-30 years.
You are renovating on a loan – remember that
First of all, reliably estimate the costs of all work and purchases necessary to carry out the renovation. If you run out of funds in the middle of time, then raising your credit can become troublesome and sometimes impossible due to lack of creditworthiness. Even if you have creditworthiness, it may take several weeks to increase the credit limit. Therefore, it is often better to apply for a slightly higher amount and not use it, or to overpay the loan.
Also, do not extend the loan repayment period to the maximum. It is true that the loan can be repaid even 25 or 30 years, but if they are not large amounts and the installment will be relatively low, it is advisable to shorten the repayment period. As a result, we will pay less interest and the total cost of credit will be reduced. Extending the repayment period reduces the installment, but disproportionately increases the costs.