Financing a Home Renovation with a Home Equity Loan
Q: I’m doing some home renovations this spring and I’m not sure how to finance this expense. There are so many options! Which one makes the most sense?
A: As a member of Olean Area Federal Credit Union, you have several options for funding a home renovation. You can open a HELOC, or a Home Equity Line Of Credit, which is an open credit line that’s secured by your home’s value for up to 10 years. You can also fund your renovations with an unsecured loan or use your credit cards.
One of the best ways to fund a home renovation, though, is by taking out a HEL, or a Home Equity Loan. Let’s take a closer look at this popular loan option.
What is a home equity loan?
A home equity loan is a loan secured by a home’s value. When homeowners open a HEL, they will receive a fixed amount of cash in one lump sum. Most home equity loans have a fixed interest rate, a fixed term and a fixed monthly payment.
What are the advantages of a home equity loan?
The primary benefit a HEL has over other loans is its fixed interest rate. This means the loan will not be subject to increasing interest rates and borrowers know exactly how much their monthly payment will be for the entire term of the loan. Also, the interest paid on a home equity loan is often 100% tax-deductible (consult your tax adviser for details).
Another benefit of the HEL is its repayment plan. Borrowers will be making payments toward the loan’s principal and interest throughout the term. At the end of the loan term, the entire balance will be paid in full.
Are there any disadvantages to taking out a home equity loan?
While a home equity loan offers the funds needed to cover a home improvement project with an affordable repayment plan, it’s important to know about every aspect of a HEL before applying.
Obtaining a HEL could potentially include closing costs. It’s best to find out if there are any fees and, if so, how much these fees will amount to before applying for the loan.
Also, when taking out a home equity loan, borrowers will receive their funds in one shot. This makes a HEL a great option for homeowners who know exactly what kind of work they will do on their homes. However, if they only have a vague idea about the renovations they want to do and how much they’ll cost, they may end up borrowing an insufficient amount.
Finally, borrowers will need to make a monthly payment on their loan throughout its life. Before taking out a HEL, be sure you can afford the payments.
Call, click, or stop by Olean Area Federal Credit Union to learn more about home equity loans and to start applying for your loan today.