A homeowner who plans to take a loan against their property may be confused between home improvement loans and home equity loans since both the loan types share the similarity where you have to pledge your home as collateral for the loan.
Both loans are a type of secured housing loan, but there are some factors that separate them. Here is what you need to know.
Home Equity Loans
Home equity is a type of housing loan that you take by putting your property as collateral. The loan amount you get is based on the current value of your property. Based on the lending institution and your income, you can borrow up to 75% of your home value. If you own a house. Home loan eligibility becomes lenient for the equity loan. The best thing about home equity loan is that you can use it just like a personal loan for different purposes, such as:
- Consolidate previous debts
- Renovate your home
- Expand your business
- Pay for children’s higher education
- Fund your child’s marriage
- Go on a vacation
- Pay hospital bills
The home equity loan is a versatile loan that you can take at a lower interest rate and longer tenure.
Home Improvement Loans
Home improvement loans are similar to home equity loans, where you pledge your house as collateral. However. As the name suggests, you can only use the loan amount for remodeling your home and nothing else. This includes:
- Adding a whole new floor to your home
- Building a modular kitchen
- Improving the security system of your home
- Repainting
- Furnishing your home
- Installing state-of-the-art flooring
- And more
Read More: Difference Between Home Loan vs Land Loan?
