Financing renovation costs from own resources is often beyond the reach of many consumers. Then it is necessary to support from the bank, i.e. acquiring external funds that will allow to carry out the planned work. What are the types of loans for refurbishing an apartment or house that we can apply for?
Credit for renovation – statistical data
Statistical data published by the Central Statistical Office in 2018 shows that about 700,000 renovations were carried out at that time. In addition, every third consumer who incurs a loan commitment, allocates it to modernize his house or apartment. The form in which the loan will be taken depends on several factors.
First of all, the renovation cost is important, i.e. the final amount of funds we want to apply for.
Secondly, our creditworthiness counts.
Thirdly, it is also important whether we can establish collateral for the bank in the form of a real estate mortgage.
Renovation loans – available solutions
Two basic forms in which we can obtain a loan for renovation are cash loan and mortgage loan. The first solution is beneficial if we intend to carry out renovation whose costs will not be higher than tens of thousands of USD. It can be, for example, renovation of several rooms in the house.
If we face the challenge of carrying out a comprehensive refurbishment, including replacement of the installation, roof or building insulation, a cheaper and therefore more beneficial solution may be a mortgage.
Cash loan for renovation – how to get it? What is characterized by?
Cash loan is a fairly standard banking product. When applying for it, it is not necessary to state the purpose for which the funds will be allocated. It can be a simpler solution, especially if you compare them with the requirements for a mortgage for renovation, about which later.
Banks when granting cash loans take into account the following factors:
- possible borrower’s debt – this usually negatively affects the credit decision,
- amount and source of income – an employment contract is desirable, preferably for an indefinite period,
- credit history – determined on the basis of BIK rating.
Renovation mortgage – how to get it? What are the award rules?
The mortgage is secured by a mortgage. Importantly, this is a special-purpose loan – funds can only be used for renovation. A home or apartment renovation quote is usually required, which is usually carried out by the bank. The value of allocated funds is not higher than 60% -80% of the property value. The borrower is required to submit all invoices and bills that certify the spending. Of course, he must be the owner of the property or possess her property deed.
Renovation loan – interest rate
Which solution is financially more advantageous? Loan without a mortgage or for a mortgage? Considering only the interest rate on these loans, it must be stated that a relatively cheap loan is the mortgage. Its interest rate does not exceed 5.5%. While the highest interest rate on cash loans reaches even 10%.
However, the process of applying for a cash loan is much easier and the waiting time for it is shorter. It should not be forgotten that the establishment of a mortgage in favor of the bank always involves the potential loss of property if the liability is not settled.