Homeowner’s Loans Vs HELOCs, which is Better for Home Improvements?

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Looking To Upgrade Your Home? There Are Two Main Ways You Can Pay For It Through Lender Borrowing.

Funding your home improvements is no easy task. You may think you need a set amount only to find out you need much more than initially though when the builders start work. Some projects can hit problems from the moment the first brick is removed, while others go without a single hitch.

No matter how difficult your home improvement project is, you are going to need a way to pay for it. Traditionally, this has left you with only two options as a homeowner. You could take out the loan borrowed against your mortgage, the homeowner’s loan. Second, you could borrow against releasing the equity tied up in your house. Traditionally, the latter was frowned upon. That’s because the UK didn’t have access to the HELOC until very recently.

Let’s talk financing your home upgrades and what is better: the Homeowner’s Loan or the HELOC?

What is a Homeowner’s Loan?

A homeowner’s loan is a sum of money that you take out from a lender. The money is borrowed against the fact that you have a house as collateral. As a homeowner, you can use this asset to back your borrowing and potentially use it to pay back said borrowing, should you fall on challenging times. The house makes you a sure bet for the lenders. One way or another, they will get their money back from you.

This type of borrowing is secured because the security lies in your assets. You will pay one lump sum on the product plus interest on the amount over time. The longer you take to pay it back, the more you repay.

Homeowner’s loans are good for items that only include a one-time purchase. For example, if you are buying a new car, you might take out this type of loan. You are only going to pay for that new car once, ergo the Homeowner’s loan does the trick.

What is a HELOC?

The HELOC is a new product to the UK and stands for Home Equity Line of Credit. While we recall the home equity release options of old, this one is a little different and allows you to borrow more money. You can have as many HELOCs as you have houses.

The HELOC lets you borrow as much as 80% of the total value of your home. This amount is less the value of the mortgage you still must repay. So if you have a £100,000 house and you have £10,000 still to pay on your mortgage, you could borrow up to £70,000. Not bad for a lump sum loan.

The HELOC is best for projects likely to overspend. Refurbishments, school tuition fees, rent on other properties – all these things can stack up month to month. A HELOC lets you cover them with one product, and you will only pay interest on the amount you use.