The house as collateral for a loan, a good decision?

On some occasions, a house needs a full makeover since when we acquire it is totally uninhabitable, either because we have inherited the old house of our grandparents or because we have opted to buy a house that needs a radical change.

These types of works can reach prices that are too high to pay with our savings or even finance them with a personal loan. These products can provide us with up to 50,000 dollars with a maximum term of eight years, which could leave us somewhat short of budget.

However, if we want an old house to be like new, there are other types of loans that can help us get it. These are the loans with mortgage guarantee, a type of product that allows us to obtain a larger financing to face large works when using our house as a guarantee of payment.

From the financial comparator CashLink we find out the main qualities of these credits and the alternatives to be able to renovate our house and leave it to our liking.

A large amount and a long term are the main advantages.

home loan

The amount of the loan that we can get with these products will depend directly on the appraised value of the home. Although each bank or private financial entity will impose a maximum amount, in general, this will never exceed 30% or 40% of the value of the appraisal of the home that we put as collateral.

In turn, the term of these products is usually much longer than a personal loan, which will mean that, despite requesting a higher amount, we end up paying a lower monthly fee. While personal loans rarely exceed eight years (we can find these credits with up to 10 years of repayment period), if we use the mortgage guarantee we can get terms of up to 20 years.

This makes our loan end up being more expensive, as we will be paying interest for a longer time, but it will significantly reduce the monthly payment we will have to pay until we return the money.

It is important to be responsible when we request these credits.

It is important to be responsible when we request these credits.

As we have said before, home equity loans provide superior security to the lender than those with personal security. This is due to the fact that, in case we do not pay the monthly installments, the lender can perform a seizure order on the property deposited as collateral and keep it. Taking into account that the money he will lend us will never exceed the appraised value of the home, we will be risking a good whose value is higher than the loan.

Given the risk of putting our house at stake, after having reformed it to leave it to our liking, the question may arise when we should say no to these financing products. The main consideration that must be taken into account is that, if we are not going to need an amount that we could not get through a personal loan, it is not necessary to deposit a property as collateral.

What if my house is already mortgaged or we don’t want to use it as collateral?

A disadvantage that we can find if we want to resort to one of these credits is that we already have a mortgage hanging from our home. However, many home equity loans will grant us money if we have already repaid a high percentage of the mortgage. In general, if we have repaid more than 80% of the mortgage, we can apply for a loan of this type.

However, we may not want to put our home as collateral, either because it involves a risk we do not want to assume or because the amount we need is not too high. In these cases we can consider going to another type of financing: personal loans. These financial products will allow us to get up to 50,000 dollars in general, so we can cover a wide variety of home renovations to leave our house as new.