Renovation loan Renovating your own home often costs a considerable amount of money. Those who do not have that money in their savings account can choose to take out a loan. In the first instance, people may think first of an increase in the mortgage. After all, that is the loan that belongs to your own home. However, there are also other options for financing a renovation.
Loan interest also tax deductible When financing a renovation, it is good to also consider alternatives. Costs are involved when increasing the mortgage, such as appraisal costs, consultancy costs and possibly notary costs. These costs are not an issue if you opt for a personal loan. Like the interest on a mortgage, the interest on a personal loan is usually tax-deductible if the borrowed money is spent on the owner-occupied home.
Loan interest versus mortgage interest The interest on a personal loan is higher than the mortgage interest . This has to do with the degree of certainty for the lender. He has more security with a mortgage: he will get his money back sooner than other creditors if the house is forcibly sold. A personal loan is a blank credit: there is no extra security for the lender. If the customer gets into payment problems, the bank does not have priority over other creditors.
In one situation the difference between the mortgage interest and the loan interest will offset the costs of the mortgage, in the other situation it will not.
Compare mortgage and personal loan Anyone who is going to renovate and want to finance the costs with a loan can do so in two ways. It is wise to make a good comparison between the costs and charges of the mortgage increase and the personal loan.
Total costs of renovation If you borrow money to pay for your renovation, it will make your renovation more expensive. After all, the interest on the loan taken out is, just like the materials and labor, part of the costs of the renovation. Taking out a mortgage that will be repaid in 30 years may therefore seem attractive, since it has the lowest monthly charge, but can be very expensive in practice. You pay for it for thirty years, while the new kitchen is already due for replacement. The term of a personal loan is usually much shorter. That makes the loan more expensive if we look at the costs per month, but you will get rid of the debt much sooner.
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