Equity loan vs personal loan for home makeovers

Recently updated on January 10th, 2023 at 05:52 pm

There’s a lot to consider when doing a home improvement project, and the budget is usually at the top of the list. And, we all know that home renovations usually require a sizeable amount of funds.

A lot of the time, savings can only go so far toward an improvement project. Consequently, many renovators seek additional funding via personal loans or home equity loans.

How does a home equity loan work?

Your home equity increases with the number of mortgage payments made and when the value of your home rises. Also, when you renovate your home, you add value to it, which also helps increase your equity.

Equity is an asset that can be withdrawn. A home equity loan allows you to secure funding by using your home equity. For example, you can use your built-up equity in the form of a home equity loan for a deposit for a new loan, contribute towards purchasing a new property or pay for renovations.

What are the benefits of a home equity loan?

A home equity loan is a relatively quick and easy way to obtain a sizeable amount of money in a short time.

Lower interests

Home equity loans typically have lower interest rates than other loan products, such as personal loans or credit cards, as your house value secures the loan. Home equity loans also usually have a fixed interest rate.

Easy approval

It is usually easier for borrowers to get approved for a home equity loan than other home loan products – particularly from a non-bank lender.

Unlock the value of your home

Home equities enable borrowers to benefit from the equity in their property and use it for other purposes, such as home renovations or investments.


A home equity loan is provided in a lump sum, which is why this loan type is often used for deposits or to pay for substantial expenses.

What is a ‘renovation home equity loan?’

A ‘renovation home equity loan’ stipulates that the funds must be used to remodel, renovate or repair the borrower’s home. Common uses include adding in an attic, doing basement repairs, and bathroom and kitchen fit-outs.

What is a personal loan?

A personal loan gives you access to funds to use for various purposes. Personal loans have broad applications from debt consolidation, paying for home renovations or planning a dream vacation. Personal loans are offered by banks, credit unions, online lenders, private lenders, specialized lenders and fintechs.

Personal loans may be secured or unsecured. Secured personal loans require collateral, such as a car or a real estate property, to obtain funding. If you default on the loan, the lender will seize your collateral to satisfy the debt. In contrast, an unsecured personal loan allows you to borrow money without collateral. Unsecured loans are generally considered riskier than secured loans and usually attract a higher interest rate.

Which type of loan makes more sense for your home improvement needs?

It can be a tough decision! There are scores of different funding options. It’s best to speak with your mortgage broker to help determine the most aligned type of finance to suit your needs.

Key takeaway

A home equity loan uses the equity in your home to give you access to funds. Meanwhile, a personal loan can be either unsecured or secured by an asset. Both home equity loans and personal loans can be used for various purposes, like home improvement. The type of loan that is right for your home improvement will depend on how much you need, whether you satisfy the lender’s criteria, and your personal circumstances.


Mango Credit

Yanis Derums is the Founder and Director of Mango Credit– a leading private lender specialising in bridging loans for personal use and business short term loans for commercial and/ or investment purposes. Yanis has extensive experience with financial analysis, credit assessment, product structuring, and general business management

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