The benefits of using a home equity mortgage for home improvement
Home equity loans can be an affordable way to remodel your home and make it more personal. There are many renovation options available, including adding a deck to your home, finishing your basement and remodeling your kitchen. If you are looking to improve the functionality and comfort of your home, any one of these projects could be a great option.
A home equity loan is only available to those who have equity in their current residence. Equity is the difference between your home’s current market value (what it can sell for) and your mortgage debt. Additional requirements for lending include income verification and credit verification.
A typical home equity loan
Discover Home Loans’ home equity loan has many similarities and differences to a primary mortgage.
You can find typical home equity loans here
- It is possible to choose the fixed payback period within a budget range.
- For the term of the loan, a fixed interest rate is in effect.
- Signing of a loan will result in a lump-sum payment.
- The loan funds become due to begin accruing interest.
- Your home will be the collateral for the loan.
- Closing costs might be lower than for a primary mortgage.
The benefits of using a home equity mortgage for home improvement projects
Home equity loans are a great option for homeowners who have a few basic features.
Lower interest rate
You can usually get a home equity loan secured by your house, so you will often get a lower interest rate than an unsecured loan.
If you itemize deductions, and use the funds to improve your home, you might be able deduct the interest that you pay on a loan for home equity. Your personal financial situation will help your tax preparer determine how much is deductible.
Select a period of payback that fits your budget
Some home equity loans have a term up to 20 year, but some may be longer.
An increase in home value
Home improvements can bring equity to your home. An experienced real estate agent can help you determine the impact that your renovation will have upon your home’s value. Some homeowners use home equity loans for high-return improvements to their home, which increases its appeal and makes it more appealing before listing it for sale.
How to get the best out of your home equity loans
Establish a budget and stick with it
Home equity loans are issued for a fixed amount. Therefore, you need to determine the estimated cost of your project before applying for a loan. Discuss the scope of your project with professionals and get estimates to help you establish a realistic budget. For overruns, it is possible to add 10%-15% to your estimates.
Learn the difference between equity and Return on Investment (ROI).
Equity is the amount of equity that your home has above its mortgage. ROI stands for Return on Investment. Your equity may be increased by home improvements, but you won’t get 100% back on your investment. If you spend $20,000 to remodel your kitchen, it could increase the home’s worth by just $16,000. You should keep these financial projections in your mind, especially if it is your intention to live there for only a few more years.
Your current needs can be balanced with the resale potential
It is possible to make home improvements that increase your comfort level and meet your needs for daily living. You may lose your potential home buyer if you personalize too much.
It is possible to use a home equity loan to make home improvements.
Home equity loans can help you to renovate your home. The cost of a home equity loan for remodeling can be reduced by a lower interest rate or possible tax benefits, depending on your situation. Home equity loans can also be attractive because they allow you to spread your payments over a longer time period.