Home renovation loan options

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Whether you're remodelling your kitchen, adding a home office, or finishing your basement, any significant home modification will cost money. You do not, however, have to wait until you have all of the funds. Home renovation loans may be able to help you get started on the project sooner than you think.

What Is A Home Renovation Loan

Home improvement loans give homeowners the money to perform essential or desirable home improvements.

These renovation loans might be personal loans, a cash-out refinance, or home equity loans.

Home Renovation Loan Options: Which One Is Right For You

There are home improvement loans available to help you. The following are some of the most common home improvement loans.

Home Equity Loan

Home equity loans are the most prevalent type of home remodelling financing. Borrowers who already have a mortgage and have sufficient equity are eligible for a home equity loan. 

The difference between the value of your home and the amount owed on your mortgage is called equity. Imagine your house is currently worth R300,000, but you still owe R200,000 on your mortgage. That indicates you've accumulated R100,000 in equity.

You can use that equity to finance house improvements. A home equity loan is also known as a second mortgage. Home equity loans are a great option. You're assured a set amount, which you'll get in full at the end. Lenders often enable you to borrow up to 85% of your equity. 

Pros Of Home Equity Loan

  • You get a one-time payment: If you're authorized, you'll get the money right away, just like with a personal loan.
  • Longer repayment terms: Home equity loan durations are often longer, with repayment periods ranging from 10 to 20 years. You have more money to spend on other things. Home equity loans allow a flexible budget because your monthly payments are cheaper with more extended payback periods.
  • Interest rates are lower: One of the most significant benefits of obtaining this type of loan is the reduced and set interest rate that allows you to save more money.

Cons Of Home Equity Loan

  • Lengthy application process: Obtaining a home equity loan to finance home improvement projects takes time due to the number of documents required. Furthermore, the lender must assess the worth of your home so that the entire procedure can take a few weeks. 
  • It's a loan with a guarantee: Your home serves as collateral for the loan. 

Personal Loan

If you don't have enough equity in your house to make changes, consider taking out a personal loan. A personal loan for home upgrades, on the other hand, may be less expensive and easier to obtain if you don't require a large sum.

You don't have to put your house up as collateral for a personal loan to finance your home improvement projects. In fact, with a personal loan, lenders usually don't consider any information regarding your house. Instead, a lender determines the loan amount and at what rate to lend to you based on your financial qualifications, such as your credit score and salary. If you don't have a lot of home equity or don't want to use your property as collateral, a personal loan is the best option.

When you take out a personal loan, you usually obtain the money in one lump sum and repay it over time with predetermined monthly payments. However, the specifics differ from one lender to the next, and there are a few things to consider:

  • Repayment Time
  • Interest Rate
  • Fees
  • Income

Pros Of Personal Loan

  • Payment in one go. You receive a single lump sum that you can use to meet a significant financial need. 
  • You can use it for anything. You can use a personal loan for nearly any reason, and it's a more common choice for those in need of funds. 
  • Interest rates are lower. Personal loans feature some of the lowest unsecured interest rates available, particularly if you have a good credit score. 
  • Monthly payments are fixed. Your monthly payments remain the same, making budgeting easy. Furthermore, you can select the most appropriate loan term for your budget, resulting in manageable monthly payments.

Cons Of Personal Loan

  • A one-time lump sum payment. If you need extra money after receiving the funds, you'll have to apply for another loan. 
  • Rates of interest can be relatively high. Although a personal loan offers lower interest rates than credit cards, if you have a bad credit score, the interest rate may be more significant. Furthermore, if the fees are high, the loan may be costly. 
  • Collateral may be required. You may be able to get a loan only if you provide collateral, such as your car or home. That implies that if you default, you could lose all of your assets.

Cash-Out Refinancing 

A cash-out refinance changes the terms of your mortgage and allows you to take out a portion of your home's value. You then put the money towards home improvement.

In a nutshell, you're effectively replacing your present mortgage on your house or apartment with a brand-new mortgage, ideally, one with a reduced interest rate, when you refinance your home mortgage. If your present mortgage has a balance of R300,000, a refinance will replace it with a new R300,000 mortgage. 

In a cash-out refinance, on the other hand, you increase the balance of your new mortgage and take the additional funds in cash. So, if your current mortgage has R300,000 left on it and you acquire a new one for R370,000, you get to keep R70,000. 

Pros Of Cash-Out Refinancing 

  • Greater loan amount: Depending on how much equity you have in your house, you may be able to borrow more money than you might with a personal loan. 
  • Lower interest rates. Compared to a personal loan or a credit card, one of the main advantages of cash-out refinancing to fund home improvements is that interest rates are often substantially cheaper. Furthermore, because your payments are spread out over a more extended period, they may be more affordable.
  • You can use the loan for anything. Using the funds from your cash-out refinance is entirely up to you. You may use it to pay off other bills, build a college fund for your kids, or repair your home, for example.

Cons Of Cash-Out Refinancing 

  • Money will not be given right away. A refinance may not be the most excellent option if you need cash quickly. An approval, processing, and closing process will be required, taking several weeks. 
  • Longer payment periods. Resets the term of your mortgage, allowing you to pay over a more extended period, and it will take longer to become debt-free.
  • Appraisal. If your house appraised for less than when you bought it, you might not be able to refinance or take cash out. 
  • Risk of Foreclosure. Taking out a larger mortgage to get cash out usually implies you'll have a higher interest rate.
  • The terms of your loan may change. Taking up a new mortgage entails new words and, in some cases, a new lender with new repayment requirements. Also, keep in mind that if you pick an adjustable-rate mortgage, the promotional interest rate will alter when the loan adjusts. 

Which Home Improvement Loan is Right for Me?

When selecting which home improvement loan is best for you, examine the following questions. However, if you need assistance, it's always good to deal with a financial counsellor and registered credit provider, especially if you're planning a large-scale project.

  • Do you own a home with equity? You won't be able to use a home equity loan if this isn't the case. 
  • How vital is it to have access to cash quickly? Home equity loans can take longer to fund than personal loans. 
  • What is the state of your credit? If your credit isn't perfect, an unsecured personal loan may be more challenging to obtain than a secured home equity loan.

Find The Right Loan With My Loan

To summarize, there is no one-size-fits-all solution for financing a home renovation project. The best financing choice for you will be the one that meets your budget, tastes, and goals.

So if you're thinking about taking out a personal loan for your home improvement, see what loan offers you can get through MyLoan.co.za.

MyLoan assists you in locating and comparing the most suitable loans. Our service connects you with many of our loan partners, allowing you to get the loan you need quickly.

Now that you've learned more about the home renovation loan options for you, you may evaluate offers from various lenders before applying. Filling out the application form below is the simplest way to do so. Top South African partner lenders will contact you with multiple offers through MyLoan. You can then compare loans, select the best choice, complete your application, and receive your funds.

How much do you need?

Get a Loan up to  R350,000

Representative example: Estimated repayments of a loan of r30,000 over 36 months at a maximum interest rate of 29.25% apr would be r1,381 per month including fees. Repayment terms can range from 2 - 72 months. Myloan is an online loan broker and not a lender. Our service is free, and we only work with NCR-licensed lenders in South Africa. Interest rates charged by lenders can start as low as 19.25% apr, including an initiation and service fee determined by the lender. The interest rate offered depends on the applicant's credit score and other factors at the lender's discretion.