Financing a Home Renovation with a Home Equity Line of Credit

Q: I’m doing some home renovations this spring, and I’m not sure how to finance it all. Do I take out a loan? Should I just charge all the expenses to my credit card? There are so many options! Which one makes the most sense for my finances?

A: Whether you’re gutting your entire kitchen or only springing for a fresh coat of paint and new fixtures, we’ve got you covered. As a member of Lincoln SDA Credit Union, you have several options when it comes to funding a home renovation. You can also fund your renovations with a personal or unsecured loan, use your Lincoln SDA Credit Union VISA credit card.

One of the best ways to fund a home renovation is by taking out a Home Equity Line of Credit (HELOC) which is an open credit line that’s secured by your home’s value for 2 years with a payback of up to 15 years.

What is a Home Equity Line of Credit (HELOC).

A HELOC is an open credit line that is secured by your home’s value. HELOCs have adjustable interest rates and have a “draw” period in which you can access the funds for a couple of years. When the draw period ends, the loan will have to be repaid, either immediately or within the next 15-20 years.

If you’re approved for a HELOC, you can spend the funds however you choose. Some plans may require that you borrow a minimum amount at each draw, keep a predetermined amount outstanding (balance), or withdraw an initial advance when the line of credit is first established (initial draw/advance).

When looking for a way to pay for home improvement projects, we recommend a HELOC. And for good reason.

Here are just a few benefits of choosing a HELOC over another loan type:

You’ll save money

HELOCs help you stick to your budget. Instead of walking out with a huge amount of cash when you open the loan, you’ll have access to a line to use as needed. This credit will only be available to you for a two years. You’ll withdraw money in the amount and at the time you need. Plus, you’ll only pay interest on this amount (not the whole line). This aspect of HELOCs makes them especially convenient if you don’t know exactly how much your project will cost.

Upfront costs for HELOCs also tend to be lower than those of other loans.

Flexible terms

Repayment of HELOCs is also flexible. During the draw period you make low payments toward the interest and some principal. When the two years if over, the outstanding balance is amortized for 2 to 15 years, depending on the size of the loan. This is especially beneficial if you don’t have the funds to pay back the loan now, but you anticipate an improvement in your financial situation in the next couple of years.

Also, because you’re only paying interest on the money you withdraw, you’ll have the freedom to take out a larger line of credit and decide how much of it to use later on.

You’re improving your home’s value

It makes perfect sense to borrow against your home’s equity for adding to its value. If you plan on selling your home within the next 10 years, it is very possible for a HELOC to pay for itself, and then some.

Are you ready to get those renovation plans rolling? Call, click or stop by Lincoln SDA Credit Union today to get started on your HELOC application!