home improvement loansHome Improvement Loans are easily obtained since your home if usually used as collateral. As there is little risk involved in these types of loans, your interest rate is much lower. Home improvement loans may be either a second mortgage or a home equity line of credit (HELOC).

With a home equity line, you will be approved for a maximum amount of credit (your credit limit) that you may borrow at any one time. You may draw on your account by either check or credit card. Many lenders will set the credit limit by taking a percentage (for instance 75%) of the home’s appraised value minus the balance owed on the existing mortgage. Home equity lines of credit usually are variable rather than fixed interest rates. The interest rate will change depending upon the swings in the prime interest rate or U.S. Treasury Bill.

Second mortgages are considered to be a higher risk than the original mortgage, since the lender which financed the original mortgage has first rights to the property. Because of this, interest rates for a 2nd mortgage will probably be higher than those for the primary mortgage. Second mortgages are usually loaned in a lump sum with a fixed interest rate and fixed payment amounts. A “reverse mortgage”, is available for those who already own their home free and clear.

Negotiate with more than one lender for home improvement loans. Don’t be afraid to make lenders and brokers compete for your business by letting them know that you’re shopping for the best deal. Ask each lender to lower the points, fees or the interest rate. And ask each to meet — or beat — the terms of the other lenders. You generally have the right to cancel the deal for any reason — and without penalty — within three days after signing the loan papers, and the lender must return any money you’ve paid.

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