As a homeowner, it can be frustrating to live in a space that doesn’t reflect your personal taste or that doesn’t work as well as it used to in the past. Making updates to your home is key to feeling like your home is truly yours, and sometimes, that means taking on home improvement or remodeling projects.
However, you may not immediately have the funds to take on these renovations, and saving for them can take months, if not years.
Fortunately, as a homeowner, the equity you’ve potentially built in your home might be the answer. With a home equity line of credit (HELOC), you may just be able to accomplish these home improvement goals. Read on to learn more about HELOCs.
How Does a HELOC Work?
Much like a credit card, a HELOC works like a revolving line of credit in which your home will be used as collateral, and you’ll only pay back what you borrowed.
A HELOC works in two phases. The draw period allows you to withdraw money from your line of credit whenever you need the funds. During this time, you only have to make interest payments. This is particularly helpful if you have ongoing home improvement projects and have unexpected expenses throughout the process. Because you’ll be withdrawing at any time during this period, you wouldn’t be borrowing more than you need (and paying back more in interest).
After the draw period is the repayment period in which you won’t be able to withdraw any more funds and will need to pay the line of credit back in full with interest. Hopefully, your home projects will be completed by this time, allowing you to focus on your repayment and to enjoy your new, improved home.
Benefits of Using a HELOC
Why should you choose to take out a HELOC over other types of loans for your home improvement projects? Check out some of the main reasons below.
Repay Only What You Borrowed
As mentioned previously, during the repayment period, you’ll only have to repay the principal balance plus interest. You don’t have to borrow all the way up to your limit. As a result, you’ll have smaller monthly payments than if you took out a loan and didn’t use all the money from it.
Higher Line of Credit
If you’ve built up a lot of equity in your home, you may be approved to borrow against most or all of your home equity. This can help you pay for bigger scale home improvement projects, like full bathroom or kitchen renovations or finishing your basement.
Lower Interest Rate
Using a HELOC for your home improvement projects over credit cards, personal loans or other types of loans can help you save in interest every month since they typically have lower interest rates.
Things to Keep in Mind
Before you decide to move forward with a HELOC to improve your home, make sure you consider the following:
How Much Home Equity You’ve Built Up
If you’ve lived in your residence for a while and know you have equity built up, you may want to put it back into your home. On the other hand, if you haven’t made mortgage payments for very long, you may want to wait a while longer to get a HELOC or find another way to fund your projects.
The Type of Projects You Need to Fund
Depending on the home renovations or remodeling you want to do, they may cost more than a HELOC can provide. Find out a rough estimate of your projects or scale back to help ensure you can pay for them.
How Long You’ll Remain in Your Home
It may not make sense to renovate your home with a HELOC if you don’t plan on staying for a long time. The money you put into these projects may not be worth it when you plan to move and sell the house.
More Uses for a HELOC
HELOCs from The Federal Savings Bank can be used in a number of other ways, not just for home improvement.
Debt Consolidation
You’re not alone if you struggle with high-interest credit card debt. A HELOC can help you pay it down as much as possible and help save you money in interest. You may even want to consider paying down other debts with high interest rates, such as personal loans.
Investment Properties
Thinking of expanding your real estate portfolio? Buying an investment property with a HELOC can help you supplement your income to reach your financial goals and prepare for the future.
Ready to Get Started?
If you’re looking to start some projects to improve your home, a HELOC may work for you. The Federal Savings Bank is dedicated to finding the loan product that works for your situation while providing personalized service and support every step of the way.
If you’re thinking about applying for a HELOC or just want to learn more about the product and its benefits, get in touch with one of our bankers today.
This information is intended for educational purposes only. Products and interest rates subject to change without notice. Loan products are subject to credit approval and include terms and conditions, fees and other costs. Terms and conditions may apply. Property insurance is required on all loans secured by property. VA loan products are subject to VA eligibility requirements. Adjustable Rate Mortgage (ARM) interest rates and monthly payment are subject to adjustment. Upon submission of a full application, a mortgage banker will review and provide you with the terms, conditions, disclosures, and additional details on the interest rates that apply to your individual situation.
