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The Smart Way to Finance Home Renovations Using Home Equity
Now is an ideal time to consider using your home equity to fund your home improvement projects. Whether you are looking to upgrade your landscaping, build a backyard deck, remodel your kitchen, renovate your bathroom, or take on another project, National Exchange Bank & Trust’s home equity loans, including a home equity line of credit, make it easy.
In recent years, the average Wisconsin homeowner with a mortgage saw substantial growth in their home equity due to soaring home prices statewide. This is great news for homeowners! If your home’s current market value exceeds the mortgage loan balance, you can borrow a percentage of that equity.
Financing Renovations with Home Equity
There are two options for using equity to remodel: a home equity loan and a home equity line of credit (HELOC). Each option has their unique advantages. Your National Exchange Bank & Trust lender can help you determine the best fit for your needs.
Home Equity Loan vs. Home Equity Line of Credit (HELOC)
| Home Equity Loan | HELOC |
|---|---|
| Available as a lump sum. | Similar to a credit card, use the funds as needed based on your pre-approved amount. |
| Adjustable or fixed interest rate terms with monthly payments. | Interest-only payments (interest rates vary over time) are an option. Pay down on principal to free up available credit. |
| Closing costs similar to a first mortgage. | Lower closing costs than a Home Equity Loan. |
| Best for one-time large expenses. | Best for when you need access to funds at different times. |
Home equity loans are great to use for large, one-time expenses such as financing a kitchen remodel. Using a HELOC for home improvements makes sense for ongoing projects and updates. It is even a smart way to pay for other expenses such as tuition, vehicles, or emergencies. The home equity loan option that is best for you may depend on factors such as your plans for selling the home, the length of time you plan to live in your home, the type of improvement you plan to make and the value the improvement will add to your home.
Using a Home Equity Loan for Home Improvements
A home equity loan is based on the market value of your home minus what you owe and uses your home as collateral. A borrower can apply for a set amount of money and, upon approval of the loan, receive that amount up front. Using home equity for home improvements or other purchases is often the preferred way to borrow, as it typically offers better terms than drawing from a retirement account or other types of financing. To estimate your loan budget, try our easy-to-use loan payment calculator.
Taking Advantage of a HELOC for Home Improvement Projects
Using a HELOC for home improvement projects or other purchases can be another great option for homeowners looking to cash in on their home equity. These revolving lines of credit also use your home as collateral offering better terms than an unsecured line, such as from a credit card. Lines of credit allow you the flexibility to draw money as you need it up to a specified threshold, which is especially helpful if you are unsure of how much you will need to borrow.
How to Build Home Equity with Home Improvements
Home improvements can be a smart way to build equity in your home, especially when the projects increase its overall value and appeal. Upgrades that make your property more desirable to future buyers often result in a higher market value, such as landscaping upgrades, energy-efficient windows, outdoor deck additions, and other remodeling. Since equity is the difference between what your home is worth and what you owe on it, increasing your home’s value directly boosts your equity, giving you flexibility for other projects or investments down the road.
Build Equity and Create the Space You Love with National Exchange Bank & Trust
Using your home equity to remodel is the perfect way to fund your home improvement project. Once your renovation is complete, you can move on to the best part - enjoying your updated space knowing you’ve increased the equity you own in your home! Get started today by applying for a home equity loan or HELOC with NEBAT.
FAQ's
How does a home equity loan work for home improvements?
A home equity loan lets you borrow a lump sum of money using the equity you’ve built in your home as collateral. You repay the loan in fixed monthly payments over a set term, often at a fixed interest rate. Many homeowners use these funds for remodeling projects, upgrades, or repairs that can improve the home’s value.
How does a home equity line of credit work for home improvements?
A home equity line of credit (HELOC) allows you to borrow against your home’s equity as needed. It is a revolving credit line. You can use the funds for home improvements, repay what you’ve borrowed, and draw on the line again.
Is a home equity loan a good idea for home improvements?
It can be a good option if you have significant equity in your home, a clear plan for your renovation and can comfortably manage the monthly payments. Since the loan is secured by your home, interest rates are often lower than unsecured loans or credit cards. However, it’s important to consider your budget and long-term financial goals before borrowing.
How to take equity out of your home for renovations?
You can access your equity through a home equity loan or a home equity line of credit (HELOC). Both options require you to apply through a lender, who will review your home’s value, your outstanding mortgage balance, and your creditworthiness to determine how much you can borrow.
What types of renovations add the most value?
Projects that often deliver strong returns include kitchen remodels, bathroom upgrades, adding energy-efficient windows, improving curb appeal with landscaping or updated siding and adding usable living space such as a finished basement or deck.
How much can I borrow for remodeling?
The amount depends on a number of factors, some of which include: your home’s value, the amount of equity you own and your ability to pay back what is borrowed. Typically, a home equity loan or line allow you to borrow up to a certain percentage of your home’s appraised value minus what you still owe on your mortgage.
