If your home needs an upgrade, here’s the answer to what you should be aware of and what it costs if you are considering borrowing for home improvement.

If your home needs an upgrade, here

Housing improvements are a little strange size. On the one hand, you typically create a noticeable, increased value in the home, but on the other hand you cannot take a mortgage on the value increase in the same way as you can if you borrow for a car or for the home itself.

A loan for housing improvements is therefore called the “private loan”, and the terms for these are basically the same no matter what you borrow. This is what Jasper Nelson, who is responsible for private lending at Regan, says.

“Although a loan may be called” home improvement “or” building loan “, it is typically a regular private loan, so don’t expect other terms or a cheaper loan because of the name,” he says. 

Although housing improvements can create an increase in value that strengthens your finances, it has no influence on what the loan costs.

“You can’t eat bricks, so a home improvement doesn’t in itself make it more likely that the bank will get its money back, and that is the probability that is expressed in the interest rate,” Jasper Nelson explains.

Play with the maturity of the loan

Play with the maturity of the loan

What it actually costs to borrow for home improvement is beyond the interest rate, together with how much you borrow and how long the repayment period is. Normally, the recommendation is to have as short a payback time as possible, but with a loan for housing improvements it may make sense to think a little differently.

If you are borrowing for a ski holiday, it can be hard to pay for it for several years, but a new kitchen you enjoy for a long time and at the same time creates a value increase. Whether it makes sense to pay off over a short or long time, therefore, changes depending on what you get out of the loan, ”says Jasper Nelson.

Overall, the loan becomes more expensive if you pay back over time because you pay interest for several months, but it gives other benefits to extend the repayment. 

“It’s important you put a benefit on the loan you’re comfortable with in your budget. Therefore, a longer maturity of the loan may mean that you have the opportunity to take out a larger loan than if it has a short maturity, ”explains Jasper Nelson.

For example, if you have the option of paying a monthly payment of around DKK 1,500, then you can only borrow in the region of DKK 50,000 if you pay back over three years, but DKK 80,000 if the loan is repaid over five years.

By setting up the repayment period and paying the same service for a long time, you increase the amount you can potentially borrow.