NEW YORK, NY / ACCESSWIRE / May 6, 2024 / Whether you're looking to spruce up your space with a kitchen remodel, finally tackle that long-awaited bathroom renovation, or purchase a new home, it's important to consider where you'll get the funds to do so. Home improvement loans and mortgages are two common options. While both serve the purpose of providing financial assistance for housing-related expenses, they differ significantly in terms of purpose, structure, and repayment terms.
In this article, we'll discuss the difference between a home improvement loan and a mortgage to help you make the best decision for your home needs.
What is a home improvement loan?
As the name suggests, a home improvement loan is specifically designed to finance your home's renovations, repairs, or enhancements. Some examples of uses for home improvement loans include:
- Kitchen remodel
- Bathroom renovation
- Roof repairs or replacement
- Energy-efficient upgrades
- Home additions
- Accessibility modifications
Home improvement loans can either be unsecured or secured by the property and often come with shorter repayment terms compared to mortgages. Depending on the lender and the loan amount, the loan term may range from a few months to several years. The amount of the loan may depend on various factors, such as the scope of the project, your creditworthiness, and the lender's policies.
What is a mortgage?
Mortgages are secured loans, meaning the property serves as collateral. This gives lenders an extra layer of security, allowing them to possibly offer lower interest rates than unsecured loans, along with depending on the financial circumstances of the would-be borrower. There are several different types of mortgages, including the following:
Fixed-rate Mortgage: A fixed-rate mortgage is a loan with a fixed monthly payment and a fixed interest rate that won't change throughout the life of the loan.
Conventional Mortgage: Conventional mortgages are the most common fixed-rate mortgages and are not insured or guaranteed by the United States government.
Adjustable-Rate Mortgages (ARMs): These mortgages typically start with a low fixed interest introductory rate, then adjust to a new rate that could fluctuate depending on economic conditions until it's paid off.
Government-Backed Mortgages: These mortgages are backed by the U.S. government and help make home ownership more accessible through mortgages like:
- Federal Housing Administration (FHA)
- U. S. Department of Agriculture (USDA) loans
- U. S. Department of Veteran Affairs (VA) loans.
The amount borrowed for a mortgage is usually more than that of a home improvement loan because it covers the cost of the entire property purchase. The borrowed amount depends on the property value, the seller's asking price, the down payment amount, and the borrower's financial situation.
Mortgages come with longer repayment terms than home improvement loans, typically ranging from 15-30 years. This extended period allows borrowers to spread out the cost of a substantial loan over time, making homeownership more accessible.
The Bottom Line
Understanding the distinction between a home improvement loan and a mortgage is crucial for homeowners seeking financial assistance for different purposes. While a home improvement loan caters to funding renovations, repairs, or upgrades to an existing home, the purpose of a mortgage is to purchase a property.
CONTACT:
Sonakshi Murze
Manager
sonakshi.murze@iquanti.com
SOURCE: OneMain Financial
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