- You can fund home improvements by refinancing your bond, which means you borrow from the home equity available on your home loan.
- Home equity refers to the difference between the property’s market value and the outstanding balance on your bond. Any amount you’ve paid into your bond is also considered home equity.
- Applying for a home equity loan is the same as applying for a home loan, and requires a good credit score.
- You can also take out a personal loan, although this needs to be paid back over a shorter term.
A few renovations can significantly boost the value of a property. Hence why many property investors employ the strategy of purchasing rundown properties on the cheap and fixing them up for selling at a profit.
Of course, if you plan to use the property as a home rather than sell it, renovations are a way to reforge the home in your image.
So how do you afford the construction costs? Rest assured, there are ways to cover home renovations even if you don’t have the cash on hand.
Home improvement loans in South Africa: What are they?
These are loans you can take to cover home improvements.
There are two options:
- Personal loan
- Home equity loan
1. Personal loan
- A personal loan is a lump sum granted by the lender and paid back over the short-term.
- Personal loans are taken out for a variety of reasons, one of which can be to fund home improvements.
- Some lenders may offer specialised personal loans aimed at home renovations.
2. Home equity loan
- If you have a bond on your home, home equity refers to the difference between the property’s market value and the outstanding balance on your bond.
- This means your equity increases if the value of the property does. If you owe R1 000 000 on your bond and the property is worth R1 200 000, you have equity of R200 000.
- Equity also refers to the amount you’ve paid on your home loan. So if the bond is worth R1 000 000 and you’ve paid R400 000, you have R400 000 equity.
- Drawing on home equity is referred to as refinancing your home loan, and can be used to cover other expenses aside from home renovations (such as paying tuition fees or reducing debt).
Personal loan vs home equity loans
The personal loan is unsecured, meaning there’s no collateral. The home equity loan, on the other hand, is borrowed against the value of your home.
A personal loan is more straightforward and can be paid back over a short term, but a home equity loan will probably be required for major renovations.
How to qualify for a home improvement loan
- You can apply for a home equity loan in the same way you apply for a home loan. The higher your credit score, the higher your chance of approval and the lower your interest rates on the home equity loan.
- Applying for a personal loan is a more streamlined process than applying for other types of loans, but will still require a good credit score for approval.
Get the best deal on your home loan
If you purchase a property with the intention to conduct renovations, you can save money in the long term by getting lower interest rates on your home loan.
At ooba Home Loans, we submit your home loan application to multiple banks, allowing you to compare deals and choose the one with the best interest rates.
This will save money which can be set aside for home improvements.
We also offer a range of tools that can make the home buying process easier. Start with our Bond Calculator, then use our Bond Indicator to determine what you can afford. Finally, when you’re ready, you can apply for a home loan.
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