Financing home improvements
- Author: Iohan Colarusso
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Are you looking to finance home improvement works such as rendering, improving insulation to save energy, renovating heating and sanitary equipment, etc.?
A mortgage was initially designed to finance a real estate purchase, but it can also be used to cover work costs. So should you choose a mortgage or consumer credit? What are the respective advantages and disadvantages of each of these solutions?
Allocation conditions
The allocation conditions are equally restrictive for mortgages and personal loans; there are no differences in this area.
The conditions are the same, regardless of whether this applies to a main residence, secondary residence or leased property.
Simplicity of the procedure and costs
The simplicity of the procedure depends on the time at which these works take place in relation to the purchase of the property.
At the time of purchase
It will be simpler to take out a mortgage. You must firstly present the quote to your bank for acceptance, followed by the invoices for payment. If the bank agrees to provide financial aid, it may request a contribution from the purchaser, generally equal to 20%. This contribution may in some cases be financed by a 3rd or 2nd pillar, but not by consumer credit. If the bank refuses your application, you can then turn to the personal loan solution.
After purchase
The mortgage procedure is more complicated. You have to perform the following steps:
- Demonstrate to your bank that these works will add value to your property
- Then meet with a notary to draw up a mortgage note, which will result in high costs.
Furthermore, the mortgage must not have reached its ceiling, failing which your application will be refused.
Therefore, applying for consumer credit is the simplest and least expensive solution in this case, as long as the budget allows for this, for a maximum of 250,000 CHF. With this mode of financing, no documentary evidence is requested.
Rate and repayment period
Mortgage rates vary on average between 1.5% and 3% depending on the repayment period and bank. Compared with a personal loan, the rates of which vary from 5.9% to 15%, those of a mortgage are clearly much lower.
At first sight, mortgage rates appear much more advantageous, but only if they apply to a repayment period identical to that of the personal loan, which is not the case!
The repayment period for a mortgage is not limited and can extend over several decades and even over a whole lifetime. However, most financial institutions granting personal loans have a maximum repayment period of 84 months, the absolute most being 10 years.
In the final calculation, in most cases, you will have paid more interest with a mortgage than with a personal loan as the repayment period is longer.
Fiscal advantages
The fiscal advantages are the same for a personal loan and a mortgage; the annual interest amounts paid by customers are tax-deductible.
Conclusions
When purchasing a property, you would be well advised to take out a mortgage to finance your home improvements as the procedure is simpler.
However, take the time to calculate the interest over the repayment period for the mortgage and compare the result to that of consumer credit. This difference may well tip the scales in favour of the latter solution.
After having purchased the property, the easiest and least expensive solution is inarguably consumer credit.
- Categories: Consumer credit