The Difference Between a Home Equity Loan and a Home Improvement Loan

Read this tip to make your life smarter, better, faster and wiser. LifeTips is the place to go when you need to know about Home Equity Loan Tips and other Mortgages topics.

What Is the Difference Between a Home Equity Loan and a Home Improvement Loan?

The Difference Between a Home Equity Loan and a Home Improvement Loan

If you want to make home repairs or improvements, you could use either an equity or home improvement loan. A home equity loan or line-of-credit may often make more sense, though. The differences are minimal, although one of them might be important to you for reasons of convenience and simplicity.

A home improvement loan will often require that you provide your lender

  • A comprehensive list of the improvements to be made;
  • An estimate of the costs of each component of the improvements;
  • A listing of the contractors who are scheduled to perform the work; and
  • A timing schedule of the improvements to be made to determine the amount and frequency of disbursements of your proceeds by the lender.
If you have insufficient equity in your property to generate the cash you need for your improvement project, you will have little choice but to apply for a home improvement loan. However, if you already have enough equity to qualify for an equity loan or line-of-credit (HELOC), this may be the better choice.

The interest rates should be equal or very similar with both mortgage types. Repayment terms should also be comparable. But, getting a home equity loan gives you all the cash you need in a lump sum and you can pay your contractor(s) as you wish. A home equity line-of-credit gives you even more flexibility, as you will only pay interest on your loan balance outstanding at month's end. Therefore, should your improvement project span more than just a few months, you would save some considerable interest expense as your balance will begin small and only increase toward your maximum over time.

   

Comments

Nobody has commented on this tip yet. Be the first.



Name:


URL: (optional)


Comment:


Not finding the advice and tips you need on this Mortgages Tip Site? Request a Tip Now!


Guru Spotlight
Mary White