Borrowing money for renovation: which loan is best?
You want to renovate your home. A new kitchen, for example, or a dormer. You need money for that. The ideal is of course if you just have that money in your account, but that is often not the case. And there is nothing wrong with borrowing money for a renovation. A beautiful renovation increases the value of your home and you also enjoy it for a long time. It is therefore not a strange idea to take out a loan.
Most homeowners have a mortgage. Logical thought is to use the money to borrow for the renovation in the mortgage. A mortgage increase, or a second mortgage. After all, the mortgage is the loan for the house, and the renovation is part of the house. Moreover, the mortgage interest is lower than the interest on consumer credit. However, an extra mortgage for renovation is not always the cheapest option.
Costs are involved when taking out a mortgage. Consultancy costs, appraisal costs and often notary fees. The total of these costs is not always offset by the lower interest rate. Depending on your personal situation, it may, therefore, be interesting to also consider a personal loan for the renovation.
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There are no costs associated with taking out a personal loan. The interest charged on a personal loan may be much lower than you think. Just look at the loan interest comparison. More and more personal loans with a longer-term are coming onto the market. The choice for a longer-term fits well with borrowing for a renovation. After all, it does not quickly decrease in value – like a car.
You may think: “but then I miss the mortgage interest deduction!”. That is not true. The tax deduction of interest does not depend on whether you borrow the money for the renovation with a mortgage or a personal loan. The interest on a personal loan is also deductible if the money is used for the owner-occupied home.
And if the loan is repaid annually in a maximum of 30 years. For example, the interest difference between a mortgage and a personal loan is even smaller – the tax authorities pay back part. This is also the reason why a revolving credit is not suitable for financing a renovation.
The interest on this credit form is not tax-deductible, because money can be withdrawn again and again up to the limit. It is not forbidden to take out revolving credit for a renovation – you will only miss the interest deduction.