With the number of home design magazines and blogs out there these days, it’s easy to start daydreaming about a picture-perfect remodeled kitchen or bathroom addition. But while you may already have a color scheme and materials in mind, your source of funding for the project might be holding you back.
Taking out a personal loan or using your credit card to fund minor repairs has worked in the past — but tapping into your home’s equity is a cost-effective way to upgrade your home for style, comfort, and return on investment purposes. Check out the benefits of a home equity loan with the following tips for the next time you consider a renovation project.
Decide Between a Home Equity Loan and a HELOC
Home equity loans vs. home equity lines of credit (HELOC): What’s the difference? Most importantly, both allow you to tap into the equity of your home to borrow cash. They normally come with lower interest rates than those of other borrowing options (like a credit card or personal loan) because they are secured by your home.
Home equity loans are sometimes compared to mortgages, where you borrow a certain amount and are provided with specific rates and terms to pay the loan back. HELOCs, like credit cards, are revolving lines of credit that you can use over a set amount of time whenever you need them.
A HELOC is a desirable option if you intend on making a handful of renovations over time without a locked-in game plan, where a home equity loan is a great fit for a major project with less flexibility, like a kitchen remodel.
Opt for Comfort and a Higher ROI on Your Home
Before you start browsing home renovation ideas and contractors that can get the job done, establish the purpose of a renovation project. Are you looking to sell your house in the next few years and hoping to increase your home’s return on investment (ROI)? Or are you planning to remodel a room or space that is specific to you and your family’s taste and comfort? For example, a brand new kitchen is not only an aesthetic and comfortable renovation choice, but can also lead to a significant ROI when you gear up to sell.
According to Remodeling’s 2021 Cost vs. Value Report, a minor kitchen renovation has a national average of 72.2% cost recouped. If you want to fund a more niche project, like say, a basement transformation into an additional bedroom, it might not contribute to an increase in your home’s value.
Attribute Funds to Corresponding Project(s) Beforehand
The great thing about home equity loans and HELOCs is that your loan amount doesn’t have to go towards one specific project. In fact, both loans can be used to fund other things — like loan consolidation or even college tuition. But it helps to have an idea of not only how much you want to borrow, but also what you will allocate the funds toward.
This also goes back to your choice between a home equity loan or HELOC — and what you intend on paying for with the cash can make a big difference in the amount borrowed and the time frame in which you establish to repay it.
Learn more about low fixed-interest home equity loans and HELOCS from Police FCU and apply online today.