Home Improvement Loans: Finding the Best Fit for You

Filipinos renovate their homes for various reasons. Usually, renovations involve fixing damage caused by flooding, fire, or any other disaster. Some take on home improvement projects to accommodate their growing family or boost the comfort and structural integrity of their living space.

Enterprising Pinoys renovate their property to generate extra income, like those renting out their home via Airbnb, or to increase its resale value. Others simply do it to improve their home’s appearance.

Whatever your reason for upgrading or fixing your home is, using up all your savings isn’t a practical choice. A sensible alternative is to get a home loan for a renovation that allows you to complete your home improvement project while managing your finances well.

Loan Options for Home Renovation in the Philippines

In the Philippines, there are three ways to fund your home renovation project aside from a regular housing loan: through a personal loan, home equity loan, or home loan refinancing. Each type of home improvement loan caters to different needs and has its pros and cons.

The best type of loan for home renovation depends on factors such as the scale and cost of your project as well as your budget.

Let’s take a closer look at each home improvement loan type to determine which one suits you best.

Personal Loans for Home Improvement

A personal loan for home improvement is no different from any unsecured loan used for other purposes like business and travel.

Advantages of Personal Home Improvement Loans

• No collateral needed – Borrowers can qualify for a personal loan even without high home equity (the difference between your property’s market value and the outstanding balance on your existing home loan).
• Easier and cheaper application – Unlike home equity loans, personal loans don’t require appraisals and other services (which come with fees) to secure an approval.
• Fixed interest rate – A single interest rate, which is determined based on the borrower’s credit history, applies throughout the loan term. This means monthly payments are predictable and can be easily budgeted.
• Lower interest payments over time – Repayment periods for personal loans in the Philippines are shorter than other types of home improvement loans, typically lasting for one year to five years. Because of this, you can quickly pay back the loan and save on interest payments compared to repaying a home loan with a longer term of 10 to 25 years.
• Smaller loan amounts – You can borrow a minimal amount for as low as PHP 10,000. This is great if you need money only for minor house repairs or upgrades.

Disadvantages of Personal Home Improvement Loans

• Higher interest rates – Compared to other types of home loans, personal loans used for home improvements (and even for other expenses) come with higher rates per annum.
• Faster loan repayments – Because personal loans have shorter terms than home loans, monthly amortizations may be difficult on the budget, especially if you’re working on a costly home renovation project.

Reasons to Choose a Personal Loan for Home Improvement

A personal loan makes a perfect choice if you have the following:

• Small, minor home improvement projects
• Good credit score
• Not enough home equity
• Fixed monthly budget

Home Equity Loans

Through a home equity loan, you can borrow against the market value of your existing home and use the money for renovation. It’s a second mortgage you’ll be paying on a fixed price per month over a number of years, similar to the original mortgage on your home loan.

Advantages of Home Equity Loans

• Higher chance of approval for large loan amounts – With a home equity loan, you’re using your home as collateral, which makes it a secured type of loan. Lenders are more likely to approve larger amounts for secured loans, especially if there’s huge equity in the home.
• Lower interest rates than personal loans – Another advantage that comes with secured loans such as a home equity loan is getting lower rates than those of personal loans.

Disadvantages of Home Equity Loans

• Risk of foreclosure – Failure to repay your loan will cause the bank to foreclose your home.
• Home equity as the basis for loan approval – The lender’s decision is largely based on your home’s market value. So if you don’t have enough home equity, you’ll find it hard to qualify for this type of home improvement loan.
• Long-term repayments – This is a drawback if you’re using a home equity loan for an inexpensive and minor home repair. You’ll be paying monthly mortgage and interest for up to 25 years.

Reasons to Choose a Home Equity Loan

Getting a home equity loan is ideal under these circumstances:

• Significant home equity
• Expensive and long-term home renovation

Home Loan Refinancing

You may also source funds for renovating your home through refinancing. This type of housing loan involves replacing an existing loan with a new mortgage, with a new interest rate, outstanding balance, monthly installments, and repayment term. You can use the extra money from your refinanced home loan for your home improvement project.

Advantages of Home Loan Refinancing

• Lower monthly payments – Refinancing is meant to make loan repayments easier to manage.
• Lower interest rates – Paying lower rates is one of the most common reasons borrowers decide to refinance their home loans.
• Cashing out your home equity – When you refinance your home loan, you’ll have access to money equivalent to the difference between your home’s market value and the unpaid balance on your home loan. You can use this amount for your home improvement project.

Disadvantages of Home Loan Refinancing

• No guarantee of approval – Having an existing home loan doesn’t automatically mean you’ll get approved for a new loan. Lenders will still have to evaluate your credit score and credit history to determine your creditworthiness.
• More expensive than other home improvement loan types – A new home loan means a longer repayment term. You’re paying interest with your new monthly mortgage rather than lowering your outstanding balance.

Reasons to Choose a Home Loan Refinancing

• Significant home equity
• Good credit score and history

Tips on Choosing the Best Home Renovation Loan

Finding the best loan for home improvement doesn’t just involve looking for ones with the lowest interest rates. There are other things you also have to consider.

Keep these quick tips in mind to make it easier for you to choose the home improvement loan that fits your needs:

• Ask for recommendations and feedback from relatives and friends who have done home improvement projects.
• Make sure you’re borrowing for the right reasons. Do you really need that kitchen makeover? Will a larger kitchen help you earn more money later?
• Compute how much you realistically need and can afford. You don’t want to risk losing your property in the future due to foreclosure.
• Work on improving your credit score. A good credit score raises your chance of getting better interest rates and deals on loans.
• Get a personal loan for minor, short-term home repairs.
• Get a home equity loan for more expensive, longer-term home improvements.
• Compare loans. Whether you’re looking for a personal loan or housing loan to meet your home renovation needs, you can easily make comparisons between loans through Moneymax.

Read more: Reasons a Security Bank Personal Loan Makes a Practical Choice

Final Thoughts

Financing your home improvement project through a loan is a great way to achieve your goals for your property. Just be sure to do your research before you start applying for a loan for renovating your home.

Venus Zoleta

Venus is an experienced personal finance writer with a background in digital marketing, public relations, and journalism. She’s into stock, VUL, and mutual fund investing. Follow Venus on LinkedIn.