Home Improvement Loan

A home improvement loan is typically granted by a bank to borrowers who want to either completely remodel their homes or improve a specific part of the house. The improvements done to a house will increase the cost of the property because of newly added features which may be for decorative purposes or may add or enhance a new functionality in the house.

Home improvement loans are not to be confused with construction loans which are typically for constructing a new house from scratch. The borrowers while applying for a home improvement loan may have to keep the house or any other fixed asset as collateral for the loan as this gives the lenders security and they are able to offer the loan at a much lower interest rate. Once the loan is sanctioned the borrower has the option of doing the home improvement projects themselves or hire contractors. Generally there is no restriction from the lender on the type of projects which are to be carried out as long as it is within the promises of the house.

There are two types of interest rates available with home improvement loans. The type of loan you pick depends upon the kind of projects in terms of duration of project, amount of finances required for the projects. If a large amount of loan is required then it is recommended to take the loan for a longer duration of time for a fixed interest rate and thereby pay a fixed monthly payment. If a small loan is required for a short period of time, a loan with a varying interest rate can be taken. But the risk is that the monthly installments will not be fixed and it will depend on the interest rate for the particular month. There is also the risk of the monthly payments increasing because of the increase in the interest rate.

Another interesting feature of the home improvement loan is that it is tax deductible and if the loan is drawn by the primary resident the interest portion may be up to 100% tax deductible. Some lenders offer up to 100% financing for home improvement projects the duration of the loan can be anywhere from 5 to 30 years.