Cheap renovation – everyone has heard, everyone wonders if it is even possible. Vacation is a good time to analyze your renovation plans. The upcoming autumn season is the best time to take specific action in this direction. However, what to do when the planned renovation involves not only painting the ceiling or walls, but also includes the purchase of equipment, furniture or replacement of water or electrical installations? A larger investment requires large financial outlays, which after the summer season are often at a lower level than we need. Check how to plan a cheap renovation.
Cheap renovation and for a loan?
It is worth considering the help that banks and other para-banking companies bring to us, namely the choice of credit or loan offer that tempts us with the lowest interest rate, no margin, speed of granting cash, no collateral or a minimum of formalities. What to choose then?
The most common option is cash loans granted by banks for any purpose. However, it is worth taking a close look at an alternative solution such as hypothetical loans . Although these two solutions are guided by one goal – beautiful and renovated our 4 walls – there are many different ones. Facing a dilemma, we encourage you to familiarize yourself with the pros and cons of each option
The basic question to start with is: How much do we need? The answer will quickly lead us in the right direction because the mortgage loan is dedicated to major renovation needs. The amount of 50,000 is usually the minimum amount that banks will willingly lend us. The maximum amount is set based on the value of the property, which may amount to a maximum of 70% of the value of the property, but not more than $ 500,000. Cash loans are ideal for people with small renovation needs. Perfect for wallpapering the room, e.g. just $ 500
Costs and additional charges
For most of us, the most important issue is the amount you will have to return back to the bank or non-bank institutions. Mortgage loans are offered at a much lower interest rate and bank margin than cash loans. This is due to greater bureaucracy, securing the property with a mortgage and other “obstacles”, which you will read later in the article. How do you calculate the final amount of your mortgage? It depends on the amount we need for renovation and the mysterious LTV ratio, i.e. the share of the borrowed amount to the value of the property. This process is analogous to the one you want to take out a loan to buy real estate.
In the case of a cash loan, the interest rate will be based on the client’s score. Representatives of banking institutions will ask us a question about our marital status, education, profession or current credit history. This data allows banks to offer loans at different rates to different people.
The final cost is not only interest and margin. You have to reckon with additional fees depending on the option you choose. In the case of a mortgage loan, one has to take into account the additional cost of a fee for estimating the value of the property, a fee for entering the mortgage in the land and mortgage register and the cost of insuring the property until such collateral is established. However, despite these additional costs, a mortgage is still a cheaper option than a cash loan, which will also be increased by an additional cost, i.e. life or unemployment insurance.
Here the startup is the undisputed winner of a cash loan, which is even granted to people who do not have ownership rights to four walls being repaired. In the case of a mortgage loan, an absolute condition is the possession of real estate which, through a mortgage entered in the land and mortgage register, will provide security for the lender in the event of problems with repayment of liabilities. In the worst case scenario, the bank may take over our house or flat. If the property is already encumbered with such an earlier obligation then it is not possible to receive a mortgage.
Time and formalities
As we can guess, the lack of collateral in the form of a mortgage causes that we will obtain a cash loan quickly and without complicated formalities. After assessing our credit standing, we can receive cash immediately. In the case of a mortgage it is not that easy. Documentation of ownership, entry in the land and mortgage register, additional insurance are just some of the documents we need to arrange and present to the bank. All this means that a mortgage requires more formalities and a longer wait for the decision to grant it.
A thorough renovation requiring more cash is a matter that we do once every several dozen years. When deciding on a mortgage, we can count on extending the loan term for loans up to 25 years. Thanks to this, the amount of our monthly installment can be easily adjusted to our financial possibilities. Depending on our creditworthiness and loan amount, the cash loan allows for a repayment period of up to 10 years, which puts a greater burden on your monthly household budget.
What to choose then? It all depends on our needs and financial situation. If we have ownership of real estate, which can be our collateral and we want more cash, it is worth looking carefully at the hypothetical loan offer. Lower interest rates and extended repayment periods will be favorable if we have a stable financial situation.
In turn, if we need a small amount at a fast pace without unnecessary formalities, we decide to take out a cash loan despite a higher interest rate and banking margin.