Short-Term Vs. Long Term Loans: Which is Right for You?

You want to boost your home’s value by making strategic renovations. And you don't want to dig into your savings for these home improvements. So, you decide to seek a loan. 

Plenty of financing options can cover home renovations—from home equity lines of credit (HELOCs) to closing lines of credit (CLoCs) to personal loans and credit cards. One of the primary differentiators between these models is the timespan of the loan. Some financing options are best for upgrades a homeowner plans to do in the short term, while other models support projects with a more ample timeline. 

Decide which loan is best for your needs by ensuring it checks out with your timeline. Here are some top financing options for renovators on a schedule and those who have time to spare. 

Short-term loan options

Suppose you’re about to put your home on the market and only wish to make some last-minute renovations to get the property in tip-top shape. You likely don’t want to take out a line of credit with a lengthy repayment period or that replenishes itself every time you pay it off. Instead, you need immediate funds to get your renovations rolling—funds you can comfortably pay off almost as quickly as you borrowed them. Here are two top short-term financing options.

Credit cards 

Credit cards may have higher interest rates than other financing options, but so long as you can pay off your monthly balance completely, you won’t accumulate these fees. So, if you need a “loan” to help with hardware store purchases or contractors who accept this payment method and you can pay off what you spend within a month, using your credit card can be a smart option.

CLoCs 

Closing lines of credit (CLoCs) are a unique financing option from Titus that provides homeowners who are almost ready to sell their properties with up to $125,000 for renovations. Titus approves CLoCs quickly and makes funds available soon after. You can spend a closing line of credit on repairs, updates, contractors—even on that rental you’ll be staying in while your home is being worked on. And repayment comes directly from the sale of your home, so you’re not locked into a long-term payment plan.

Long-term loan options

If you’re planning on selling your home soon (but not immediately) or simply want to upgrade your property so that it’s more amenable to live in, the following long-term loan options can support your work well. Here’s more.

CLoCs

CLoCs continue to be an excellent option for longer-term renovations, like ones that take several weeks. However, CLoCs aren’t intended for massive remodels or work that will span many months or years. After all, these lines of credit are meant to help homeowners get their properties market-ready fast. The benefit of acquiring a CLoC—instead of, say, a HELOC or other type of home equity or personal loan—is that once you sell your house, you repay the loan in its entirety and don’t have to worry about keeping up with monthly bills or maintaining a line of credit for years. 

HELOCs

Home equity lines of credit (HELOCs) are a solid option for homeowners who wish to do extensive remodeling or take their time, at least. HELOCs are often worth up to 80 percent of the equity that you have in your home. Equity is the value of your home minus the amount left to pay off on your mortgage. So, if you have $500,000 of equity in your home, and 80 percent of this figure is $400,000, a lender could give you a HELOC for up to $400,000. That kind of money can fund a ton of renovations and more. 

HELOCs are revolving lines of credit, meaning that once you’ve paid off the funds you’ve used, they replenish. And the draw period (the time in which you can take out money) is usually 10 years, so you can continue using funds for years to come—keeping your house in the best shape possible. If you don’t want to continue applying the funds on renovations, no problem. You can use a HELOC as you please. 

So, what’s the drawback? Financial products that leverage home equity take a borrower’s property as collateral. That means that if you default on payments, the lender can foreclose on (take away) your home. Other pitfalls include early termination penalties and processing fees (known as origin fees) and the potential for variable income rates, which can shoot up unexpectedly. And finally, if you’re in a rush to start renovating, you could be stuck for weeks without funds due to long HELOC underwriting and processing times. This last point is further evidence that HELOCs are best used by folks with long-term renovation plans. 

Home equity loans 

Home equity loans are like HELOCs but not credit lines; instead, they are lump-sum payments: one-time deposits made up-front. Like HELOCs, home equity loans present a foreclosure risk, but they have fixed interest, so there will be no surprise rate increases. 

Home equity loans can be a good option for long-term renovations, since their repayment periods are usually at least 5 years, if not 10 or 30, and on a fixed payment schedule. So, you can receive and start using funds on home improvements after a few weeks of processing time but pay back over time. Since you have a long-term repayment plan with the lender, there’s no pressure to pay back funds quickly (and therefore, no pressure to finish your home renovations ASAP to sell your home and pay back a loan).

What about personal loans?

Personal loans can be a strong option for short and long-term renovation projects, so long as those home improvements don’t surpass the amount lenders allot for these loans. One of the drawbacks of a personal loan could be a lower limit than other financing options that lend with home equity as collateral.

Another consideration is that personal loans generally have a higher interest rate than other financing options, like HELOCs. But if you don’t have equity in a property and wish to avoid using credit cards, a personal loan can help you find the funds for renovations. 

Personal loans are lump-sum payments, so you can begin using the funds for your home renovation projects immediately. They often have a fixed rate and payment period, meaning they’re only a good option if you don’t mind paying down debt over time. Some lenders charge a penalty for early payback.

Don’t just do renovations on your time. Do them your way. 

It’s wise to find a lending option that supports your renovation timeline. That way, you’re not stuck waiting for long-term financing to get approved when you should be putting in new kitchen floors. Or, on the other hand, you’re not rushing to pay off a short-term loan before you even finish your renovation work. 

But time isn’t the only important consideration when selecting a financing option. It’s essential to secure a loan that allows you to work your way, with the materials and contractors of your choosing. Titus puts you at the helm of the process, allowing you to use renovation funds as you see fit. Learn more here.