YOUR MONEY: When a personal loan is the better option
Personal loans come with high interest rates. But that may still be better than a home loan extender for a renovation job
22 June 2023 - 05:00
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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.
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.
READER QUESTION OF THE WEEK
YOUR MONEY: When a personal loan is the better option
Personal loans come with high interest rates. But that may still be better than a home loan extender for a renovation job
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
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