Summer is renovation time and it is usually time to either renovate or build something like a patio, a storage room or why not a greenhouse. Building is fun and it is a wonderful feeling when something new emerges. However, it can also be quite expensive. Therefore, it may sometimes be relevant to borrow money for renovations or extensions and this we will take a closer look at in this post. Visit http://www.freedomtoons.org/channels-to-request-installment-loans/ for a summary
To renovate or build something big can cost a lot of money
If you want to renovate the whole house or more expensive parts such as kitchens and bathrooms, it could be worth several hundred thousand kronor. Especially if you choose to do the job yourself and instead hire someone who does it for you. These large projects require a large amount of money, which can often require a loan.
Even smaller projects can sometimes require a loan. Although it is better if you have a pot to take away that you have saved together, it can work fine to borrow as well. A smaller loan is easier to repay and not as expensive. So even if you are only planning to build a porch or barbecue area, you may want to consider options for financing.
Different types of loans and credits to suit the construction project
In this article, I thought about going through various alternative ways to finance his construction project. Which loans are best suited for a renovation? What will be the cheapest and what will be the most flexible? How should you set up your credit to get the best solution for your project?
There are several different options that can suit different people and different situations. I will go through a number of different loans and credits and explain its advantages and disadvantages.
Borrow your home further
If you want a cheap loan, a first option is to look at mortgaging their existing home further. This can be done if you have a value for the home that exceeds how much you have borrowed with the home as collateral. Here you can get a loan-to-value ratio of max. 85%, which means that if you have a home worth 3.5 million, you can at most borrow 2,975,000 SEK.
When you buy a home, it is likely that you will use the entire loan-to-value ratio or fairly close, but it is also possible that you have chosen to borrow a little less, for example if you had plenty of cash for cash on the purchase. Otherwise, it may also be conceivable that you have been able to repay some of your mortgage during the years you have lived in the home. It also works just as well if your home has increased in value since you bought it.
This way, you may have room to further mortgage your existing home. If you need to borrow for example SEK 400,000, you can see if the value of your home is so high that you have at least SEK 400,000 in difference between the value and your current mortgage. It may well be conceivable that the value of the home has risen and that you have repaid the loan so that you have a margin to borrow additional money.
A mortgage loan has a very low interest rate because it is a loan with collateral. Therefore, you can borrow the money clearly cheaper in this way than through other types of loans. So it is a good first way to explore when you want to borrow for renovations and the like. Since a renovation is also an investment in the home, it is fitting that you deposit this money into the mortgage.
Ordinary private loan
An alternative that is quite common and not completely stupid is a very ordinary private loan. This is a loan with a fairly low interest rate, as long as you choose a good loan and lender, and the money you can use for whatever you want. There you can often borrow up to SEK 350,000 and sometimes up to SEK 500,000. Hopefully this is enough for what you want to renovate. If it is not enough that you intend, you can renovate in laps.
The basic idea when renovating is that you want to increase the value of your home. Of course, you want to have a good time so that it will be more pleasant to live there, but from an economic perspective you want to increase the value of the home when it brings benefits. If you can do this, you then create the opportunity to put the loan into your existing mortgage.
The idea is that you take a regular private loan for the renovation, through the renovation you increase the value of the housing by at least as much as the renovation costs or preferably more and then you make a new valuation of the housing. Then the housing should be worth so much more that you have the opportunity to convert your private loan into a mortgage, because you now have more room to mortgage your home. The private loan disappears and you get a slightly larger mortgage, which has the lowest interest rate.
It should be borne in mind that a private loan for a particular renovation increases the value of your home and you can then put this loan into the mortgage. It may not work for all types of construction projects. If you need money for something other than renovating or expanding your home, it will be a little more complicated. If you do not increase the value of your home, you cannot convert the loan into a mortgage later and then you can continue to have your loan in the form of a private loan, which has a higher interest rate.
Home Improvement loans
Previously, there were purely refurbished loans that were a little more specific. Nowadays, it is no longer a product that the banks offer. Many of them advertise renovation loans, at least on the Internet, but they still only send you on to their regular private loans.
This is a development that we have seen in recent years. Various special loans such as car loans and renovation loans have disappeared and have simply been replaced by ordinary private loans. The bank wants you to take out an ordinary loan with no collateral when you buy a car or renovate it.
When it comes to renovation, however, it is not so dangerous as this is a very common method. If you increase the value of your home by renovating it, you can then, as I wrote a little further up, repay this loan into the usual mortgage when the renovation is complete. This means that you may have a slightly higher interest rate for a while, while you are renovating, but that the interest rate will then be as for your regular mortgage when you are done and have a new higher valuation.
In other words, a renovation loan is now a very ordinary private loan with the possibility of later hopefully repaying the loan into your existing home loan. As mentioned, it only applies that you renovate in a way so that the value increases at least as much as the money you spent on renovating. Given that you can mortgage at most 85% of the home, the value increase should be even greater than your investment.
Account credit for renovation / construction projects
A very easy way to borrow for renovation or various construction projects is to have a current credit. When you build and renovate it is often the case that you spend money afterwards so you work your way forward. Maybe you buy planks a day, tiles a week later, you pay the electrician two weeks later and buy tiling, etc. a month after that. So it can last for quite a while.
With a regular private loan you usually get the whole sum at once. You may need SEK 300,000 and with a private loan you can, for example, get out 300,000 in hand directly, which will then be repaid in 5 years or something similar. The disadvantage is that you then start paying interest on SEK 300,000 directly and then pay interest on the entire amount month after month.
If you need a total of SEK 300,000 for your project, it is nice if you can withdraw the money a little now and then when you need them and then only pay interest from the money has been used. Basically, it is just as smooth as having the money in your own account just that you avoid unnecessary interest.
This even if you haven’t actually spent the money yet
Exactly what interest rate you can get is uncertain, but if you had received 8% it would have meant an interest cost of SEK 2,000 a month if you borrow SEK 300,000. It’s sad to have to shell out $ 2,000 for money that you may not have even used for the first month.
With a current account credit, you can withdraw any amount within your credit limit whenever you want, as needed. You only pay interest on the exact amount you spent and from the date you withdrew the money. If you repay the amount in whole or in part, you also do not have to pay interest more than for the exact time you had the money in your possession.
Personally, I think this is a very easy way to put it up when renovating. If you are going to last for many months, it is conceivable that some money is not needed until clearly later. I had a credit of SEK 200,000 myself when I renovated and spent no more than a quarter at the beginning of the renovation period. It wasn’t until the end when I would pay for bathrooms and the like that large amounts were deducted.
By having a credit instead of a regular private loan, I was able to save on the interest rate for several months. You have good flexibility and it is easy to use the credit. As with a private loan, you want to be able to later deposit this credit into your regular mortgage, which is what I did.
Be sure to find an account credit with reasonable interest rates. A lot of the loans that are on the market now have a clearly higher interest rate and then it becomes more expensive than a regular private loan. Feel free to check with your own bank or any other major bank as they can clearly consider offering credit with good interest rates. Especially if it is clear that the money will go to renovation and that the loan is later added to the mortgage. I myself got an interest rate of just 2 percent on this credit with SEB, which is not much more than mortgages.
Credit card for renovation / construction project
A credit card is basically a bit like an account credit only that you get the money through your card instead of being able to transfer them to the account. If you can pay for things within your project or renovation with the card then it is clearly smooth. A credit card can be used for smaller projects and renovations and should only be used in certain situations and in moderation.
The great advantage of a credit card is that you have an interest-free credit in most cases – the period between the invoices. As long as you pay your credit card invoice directly, the full amount, you do not have to pay any interest on the money you have borrowed. In principle, you have up to 45 days interest-free.
This means that if you only need a small amount of money for the construction project, a credit card can work. You do not want to let the credit run after the first bill because you then have to pay regular interest on the credit, and the interest rate on most credit cards is quite high. Then it is clearly more affordable to choose a private loan.
However, if you can stay within a budget that allows you to afford to repay everything on the next invoice, this could be an option. Of course, it works less well for large and expensive projects. Often you can get a maximum of 30,000 or maybe sometimes SEK 50,000 in credit on a credit card.
The cost of your project should therefore be lower than the credit limit and in addition, you must think that you can afford to repay the entire debt within about a month. If you feel that you are unable to do this or need to borrow a little too large amounts, I clearly advocate another method of financing. However, the credit card can work for small projects that only need smaller contributions at checkout.