Is a Home Loan Better Than a Personal Loan?
If you have a significant expense coming up or want to renovate your home, you may be wondering if refinancing a home loan or applying for a personal loan is better in the long run. The truth is, depending on your situation, either one might be better. While home loans have lower interest rates, personal loans have shorter loan terms.
Pros and cons of personal loans
Personal loans have shorter loan periods, meaning you can pay off the debt sooner. However, if you apply for a personal loan, you’ll have to manage both a personal loan repayment and a mortgage repayment every month. In addition, personal loan interest rates are higher than interest rates on home loans. So even with a shorter loan term, you may end up paying more in interest on a personal loan than you would on a redraw of your home loan.
Pros and cons of redrawing home loans
Redrawing your home loan to fund renovations or significant expenses, such as cars or holidays, makes repayments easily managed. Your lender will add the redraw payments to your mortgage payments, so you’ll only have one repayment every month. The amount you can redraw is based on how many extra repayments you have made on your home loan. If your lender has no redraw limit, you could borrow more than you could from a personal loan. While home loans have lower interest rates, longer loan terms mean you may end up receiving more interest than you would if you applied for a personal loan.
If you are debating between a personal loan or a home loan redraw, consult the lending specialists at Mortgage House. We understand the lending process and will sit down with you to get a complete picture of your financial situation to help you choose which loan is right for you.