April 2024

6 reasons to choose a HELOC for home renovations

Spring is the perfect season to tackle home improvements. Whether you’re prepping your home to sell this summer or planning to stay in place, if you don't have enough cash to cover the upgrades, you'll want to think about funding options.

Most of us need help to pay for larger home renovations such as installing a new roof or windows, updating a kitchen or bathroom, or enhancing an outdoor space. A home equity line of credit (HELOC) is a cost-effective solution.

What is a HELOC?

A HELOC is a line of credit secured by the value of your home. The amount you can borrow is based on your available home equity — you can usually borrow up to 80% of that value, though this may be lower or higher based on program guidelines. With most HELOCs, you can access funds for a specific amount of time — usually 10 years. You then have a set period to repay — typically about 20 years.

Benefits of financing with a HELOC:

Lower interest rates.

HELOCs generally often offer lower interest rates than personal loans and credit cards.

More flexibility.

If you withdraw money from your HELOC and pay it back, you can withdraw that amount again before your draw period ends. This works well if you plan to do multiple home improvement projects or if you have a single project that you're planning in stages.

More time to repay the funds.

Personal loans typically offer a repayment period between six months and seven years. HELOCs offer a repayment period between 10 and 20 years, which can reduce the size of your monthly payments.

Ease of access.

Whenever you need funds from your HELOC, most lenders allow you to transfer them to your checking account without having to pay a transfer fee. You often have other withdrawal options, including credit card, check and cash withdrawal.

Only pay interest on what you borrow.

HELOCs function similarly to a credit card — you only pay interest on the amount of your credit limit that you actually borrow. In comparison, since funds from a personal loan are received as a lump sum, you pay interest on the entire amount of the loan, even if you don't use the money right away.

Interest may be tax deductible.

If you use funds from a HELOC for home improvements, the interest you pay may be tax-deductible.Footnote1 However, keep in mind that if you use HELOC funds for other purposes, you don't get a tax deduction.

How to get started

When you apply for a HELOC, your lender will need to verify your income and will also need to know how much you owe on your current mortgage, as well as how much your home is worth. If you're not sure how much equity you have, use our Home Value Estimator to see approximately what your home is worth, then subtract how much you still owe on your mortgage. Your lender may also require a formal appraisal after you apply.

Put the equity in your home to work

You've worked hard to build up equity in your home. It may be a good investment to use some of that equity on home improvements that add value. And even if you plan to sell the home soon, strategic improvements could help you get a better sales price, and you can pay off the HELOC after you sell.

A note from your lending specialist

Whether you're thinking about a HELOC for home renovations or looking to buy a new home, you can count on me to help with all your home loan needs.

1 Please consult your tax advisor regarding interest deductibility.

03/2024 | MAP6425291