Most every one of us borrows a mortgage at least once in our lives when it comes to buying our own home. Changing a home often entails many additional costs, such as buying new furniture and renovating a new home. As a result, many mortgage lenders are happy to take out a little more than what is required to purchase a home. Many times borrowers say that it does not matter whether the mortgage is EUR 200,000 or EUR 210,000. However, this is not black and white.
Extra costs can also be financed by consumer credit
Mortgage rates are currently very low, which is why the inclusion of the renovation housing loan may seem like a very attractive idea. Although the general interest rate is quite low, naturally, consumer credit rates are higher than mortgage rates, so financing a renovation with a consumer loan does not sound sensitive if the renovation can also be financed with an almost free mortgage.
However, many do not take into account the maturity of a mortgage, which is typically up to twenty years (according to Bank of Finland statistics, the average maturity of a mortgage loan taken in 2016 was 19 years), whereas a consumer loan generally has a repayment period of a few years.
Repairs with a mortgage or a consumer loan?
Which one, then, will make it cheaper to finance the renovation, with a low-interest but long-term mortgage, or a higher-interest but short-term consumer loan? We calculated!
Due to the long repayment period of the mortgage, the renovation loan included in the mortgage will in this example result in a total cost of EUR 1,712.37 higher than the renovation financed by a separate mortgage. So it is quite obvious that a home loan is not worth paying back for 20 years as a mortgage loan, but it is more economically viable to take a separate, shorter term loan for the renovation.
Be sure to compare and tender your loans
Whether it’s a mortgage or a consumer loan, comparing the loans is extremely important before making a loan decision. It is a good idea to ask for mortgage deals directly from the banks and be sure to bid for the most affordable loan. Consumer credit, on the other hand, can easily be compared in our unbiased comparison!
When comparing loans, always calculate the total cost of the loan. In our comparison results, calculating the total cost is easy: the amount of the monthly installment is multiplied by the number of months of the loan period.
The annual percentage rate of charge is a good measure of the total cost of a loan, but it is not clearly stated by all service providers. For example, the guarantee percentage is omitted by many players, and if you do not have a guarantor and you are applying for a loan, the current APR is different from what is shown.
Combining loans with mortgages
Whether old loans can be combined with a mortgage is a common question that arises from mortgages and combining loans. Paying a larger loan instead of several smaller ones often saves the consumer money. We recommend combining old loans only if they reduce the cost of the loan or loan altogether.
However, whether it is possible to combine old loans with a home loan depends entirely on your own bank. In some cases, it is proving to be possible to combine old loans with mortgages. If you are considering this solution, contact your bank to determine the possibility of a combined loan.