Does your house need a new roof? You’ll enjoy lower energy bills if you install a new and efficient HVAC system and new windows. These things are excellent investments but where will you get the money? You can tap into your home equity or check into unsecured quick home improvement loans. To help you decide which option is best, let’s look at both.
You have two options for using your home’s equity as loan collateral. First, you can go to a lender and take out a second mortgage. This kind of loan uses the equity you have in your home as collateral. For example, suppose you owned a home worth $200,000, and you owed $150,000 on the first mortgage. You can use the $50,000 in equity as loan collateral and borrow a percentage of your equity.
You may choose to refinance your home. Let’s take the same $200,000 house for an example. If you refinanced for $200,000 you pay off the $150,000 mortgage and the rest is yours to keep (minus loan fees and closing costs). Now let’s see how these options stack up against unsecured quick home improvement loans.
Problems with Home Equity Lending
You take several risks when you borrow against your home’s equity. For example:
- You could lose your house – if you can’t make the loan payments, the lender has the right to seize your property.
- Credit difficulties – if you default on a home loan, it can be hard to get another one for many years.
- Equity loss – if the value of your home goes down in the future, your equity will drop. You could end up owing more on the home than it is worth.
Quick Home Improvement Loans
With an unsecured loan, your equity is safe. It’s possible to qualify for these loans, even if our credit is not stellar.