If your purpose is to save money, you should try to consider home improvement loans rather than moving house. Undoubtedly, they will save you a lot of money despite having higher APRs than a mortgage for a new house. However, at the same time, it does not insinuate that this should be your preferred choice. Sometimes, taking out a mortgage is a better alternative, especially if you are moving to a better location or a bigger house.
Both options involve a considerable size of budget. The right choice hinges on your budget as well as your goals. This blog will help you understand which option will actually save you money.
What are home improvement loans?
Home improvement loans are personal loans designed to help fund renovation projects. If your home renovation budget has fallen short of cash, you can fund the gap with a home improvement loan.
- It is worth noting that you will not be able to qualify for a large amount of money.
- The maximum loan amount you can borrow without security is up to €15,000.
- The lending amount could be much lower than that, as it is subject to your repayment capacity.
- Every lender has their own method to determine how risky you are.
- Interest rates vary by lender. research beforehand is recommended.
- The APR of these loans could go up to 49.9%.
- If you want to secure a large amount of money, you will have to put down collateral.
In order to qualify for home renovation finance in Ireland, you must meet the following conditions:
- You must have a good credit score. While some lenders would be able to approbate your application despite a poor credit rating, they will restrict the loan amount and charge a higher APR. Approval without collateral is quite challenging.
- Your income sources should be strong. If you fail to prove your repayment capacity, you will certainly struggle to get the nod for these loans.
Whether you choose an unsecured or a secured home renovation loan, the whole process is quick.
The cost of moving house
Buying a new property is expensive and a larger commitment. The total cost of a mortgage actually hinges on two factors:
- Your credit score
- Your income sources
Your credit score should be stellar if you want to qualify for a lower mortgage interest rate. At the same time, you will need a strong repayment capacity. The APR for a mortgage will be much lower than the APR for a home renovation loan, but they come with a very long repayment term. Do not forget that there are additional fees and charges.
- Stanp duty and registration, which could be up to 7% of the property value.
- Brokerage fees, which would be up to 2% of the total property’s value.
- Moving and transportation cost
The following table demonstrates the cost of renovation vs relocation cost:
Factors | Renovation loans | Moving house |
Upfront cost | Upfront cost is not much, especially if it is unsecured. No down payment is required, even if it is secured. | The upfront cost is a 10% of the total value of the property. |
Monthly instalments | They would be either small or large, depending on the loan size. The maximum repayment term is about five years. | Mortgages are more expensive than home renovation. They come with 10, 15, 20, or 25-year-long repayment terms. |
Hidden costs | Budget sometimes overruns. A temporary relocation might be needed. | Stamp duty and brokerage fees are required to be paid off. |
Value impact | Bathroom and kitchen remodelling can increase the value of your house by 10 to 20%. Some renovations do not help at all. | The value of your house keeps increasing over time. |
Flexibility | Customised options are available. They are more flexible than mortgages. | Mortgages come with fixed terms. They are not as flexible as home renovation loans. |
When does a home renovation make sense?
Renovation makes sense when your current home does not need structural-level changes. They are a good choice if you need a minor expansion and modernisation.
- They are easier to manage cash flow as upfront costs are low.
- There would be no disturbance in your daily routine at a major level.
- If you are looking to increase the value of your house by kitchen or bathroom remodelling.
However, they are subject to certain risks:
- Adding space is not always possible.
- You might end up spending more than you should.
- These loans are available at high interest rates.
When does moving house sound like an ideal choice?
Moving is an ideal choice when you need a bigger space. It is likely that you want to upgrade your lifestyle. Of course, space expansion in your existing house is not feasible. It becomes compulsory to move house. Here are some situations when you should consider relocation:
- You want to move out to a new place because of better schools, transportation and neighbourhood.
- You want to climb a property ladder.
- You need a permanent solution to deal with space problems.
However, it has certain drawbacks too.
- Upfront cost and additional charges are quite high.
- You will be tied to debt for a very long period of time.
- It could affect you emotionally as well as financially.
Whatever the option you consider, make sure that it is suitable for you. If you are unable to choose a lender who offers an affordable deal, consider contacting a loan broker in Ireland like Givemyloan. They will help introduce you to a lender who provides you with the most affordable deal. This will also lower your chances of being rejected.
The bottom line
Home improvement loans will help you save more money. However, they are not always a suitable option. If you want to upgrade your lifestyle, you will need to invest in a new property. In that case, mortgages will be a suitable option.
At the time of deciding between the two options, you should carefully understand your needs and budget.
