Renovation Loans for Home Improvements

By Lauren Leisk, Yahoo7 Moneyhound Updated July 24, 2015, 2:00 pm

Loans for home improvements can help boost your equity, property value and personal wealth.

Improving your home is one of the best investment activities you can do. This is because when you sell your home, any capital gains you've made are completely tax free.

But making improvements to your home can be tough on your savings account.

Although there is another way to fund home renovations if you already have equity in your property. Home equity can be valuable if you want to draw down on your current loan. In other words, your property value can be tapped to make further home improvements with loans available for home owners to assist with adding value to your home.

Related: Cashback. What is a home equity loan?

Using equity to make home improvements

The gap between the value and the amount owed on your property may be equity against which you can borrow.

You may approximate that spending $50,000 could boost the value of your property by $100,000. In this case, it might make sense to borrow against the equity in your property with a home improvement loan. This is one way investors and property developers boost future equity and value with very little strain on their own savings.

Related: Make the most of record-low interest rates

Only pay interest on home improvements you make

A home improvement loan may allow you to only pay interest on the money you have used. If you are approved for a lump sum amount, you only pay interest each time you draw down on your loan for works completed. This can be valuable for helping you budget as you go, or if your home improvements take longer than anticipated.

Save with home improvement loans

You may find interest-only terms for home improvement loans allow payments to be reduced at the start of your loan. When you complete your renovations or additions, or your grace period expires, the redraw amount may revert to regular principal and interest payments.

Related: Renovate slowly for results in a flat real estate market

Be smart with home improvement loans

Get valuations done on your property and discuss your plans with your lender before getting work started through your home improvement loan. If you are using a line of credit option and your money can be used for other costs, make sure your spending is a wise investment choice for your future equity and capital gains.

Home owners who wisely use their line of credit, equity and home improvement loans can strengthen their current position and fast-track their future financial freedom.

Moneyhound compares market leading home loans and rates so you can find the cheapest.

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