How To Use a Home Equity Line of Credit to Fund Your Home Renovation

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When you have plans for improving and transforming your home your thoughts will inevitably turn to how you are going to pay for these renovations.

Arranging a home equity line of credit (HELOC) could be the best option for funding your home renovation plans in the most cost-efficient way possible. If you search HELOC rates Utah, for instance, you will see that borrowing rates are very competitive compared to some other loan options.

Once you have worked out your budget and checked what you can borrow the next question is what is the best way of using a home equity line of credit to fund your home renovation?

Is this the right option for you?

It makes sense to take the opportunity to consider your finances and decide whether borrowing money that is secured against your property is the right thing to do.

A home equity loan for home improvement is like a second mortgage. It is usually a fixed-term loan for a specific amount of money to cover the cost of a project such as adding a new room, for instance.

On the other hand, a HELOC, although it works in the same way where you borrow money against equity in your home, but the crucial difference is that you are opening up a line of credit rather than borrowing a fixed sum.

This means you can use as little or as much of the available credit you have been offered and you only start repaying the principal and the interest once you start drawing down funds.

If you have a sizable renovation project and want to ensure that you have funds available to get everything done it could be that the HELOC option would be more suitable.

Advantages of HELOCs

It is wise to remember that you are borrowing against the value of your property. That means your home is at risk if you stop making payments. However, one of the obvious plus points of a home equity loan is that it is almost certainly cheaper than many other forms of borrowing.

Borrowing against your credit cards or taking out a standard bank loan would most likely be more expensive. Credit card borrowing, especially for large sums is not a good idea as the interest charges can soon increase the size of your debt.

A HELOC gives you the option of making interest-only payments during the draw period. That should make it kinder on your finances while work is going on and you have lots of other expenses to contend with.

The other major advantage attached to using a home equity line of credit is that because you have access to a finance facility you don’t have to borrow more than you need.

Taking out a $20,000 loan for instance, when it turns out you only needed $15,000 is not very efficient from a financial point of view.

Being able to use as much or as little of the line of credit as you need, and borrowing at competitive rates, means that this could turn out to be a good way of making improvements to your home in one of the most cost-effective ways available.