Read the latest e-paper

E-Editions: Business Day and Financial Mail Online
Read Now
subscribe Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
Subscribe now
Picture: 123rf.com
Picture: 123rf.com

Question:

I’m considering taking a home loan extender to fund my home renovation as opposed to taking out a personal loan. What are the disadvantages to taking a home loan extension?

— Fat Wallet Facebook community member

Answer: 

The attraction of using your home loan is that it offers a low interest rate that will be around prime (currently 11.25%), whereas a personal loan would be at a much higher rate. But the long-term costs for a home loan extender may still make it a horrid financial option.

The problem is the term remaining on the home loan. If it’s relatively new, then you’re paying off the home extension over 20 years. That interest is really going to stack up over the period. It will probably end up costing far more, albeit at lower monthly payments.

The home loan extender may also incur additional fees depending on how it is structured. If the bank is extending an existing home loan based on an increased value of your home, it will charge all sorts of fees that you would not pay with a personal loan.

In this case, we would suggest rather using a personal loan. However, you can use an online calculator and run the numbers for both options and that will tell you which costs more in total.

— Your Money team

We want to hear from you! Send questions to yourmoney@fm.co.za

subscribe Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
Subscribe now

Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.

Speech Bubbles

Please read our Comment Policy before commenting.