as the value of the house has increased In recent years, you may have more equity in your home in Vermont and New Hampshire than you realize. This equity can be borrowed through a home equity line of credit (HELOC) or home equity loan to fund home improvements and renovations. Keep reading to learn the differences between these two types of home loans, what they’re best for, and what to consider before applying.
The difference between a HELOC and a home equity loan
a HELOC, or a home equity line of credit, is a type of loan that allows homeowners to borrow against the equity they have built in their home. To estimate your current home equity, subtract your mortgage balance (and any other mortgages) from your home’s market value.
Opening a HELOC means you have access to a certain borrowing limit, typically up to 80% of the home’s value. A HELOC functions like a credit card, allowing the borrower to access funds as needed, make payments on the balance, and use the HELOC again.
a home equity loanA second mortgage, on the other hand, is a type of second mortgage. This is a lump sum loan with a fixed interest rate and fixed repayment schedule.
HELOCs typically have variable interest rates. This means that interest rates can change over time. The interest rate on a home equity loan is fixed, meaning it remains the same throughout the life of the loan.
The loan limit for a HELOC is normally determined by a percentage of the value of your home and the remaining balance of your first mortgage. Home equity loans, on the other hand, are typically offered for a fixed amount. However, with both types of home equity financing, lenders typically want to leave a 20% cushion between the mortgage balance/borrowing limit and the estimated value of the home. This protects both you and your lender from being “underwater” on your mortgage if property values decline.
Borrowers can use funds from a HELOC as needed, as long as the credit limit is not exceeded. Depending on the terms of your HELOC, you may not need to withdraw it right away. Some homeowners use HELOCs as a type of emergency fund. With a home equity loan, the borrower receives the full loan amount at closing and must begin repayments immediately.
When is a HELOC the best option for your home improvement needs?
A HELOC is a good option for home improvement projects that take place over time, such as a kitchen remodel that is completed in stages. Borrowers don’t have to pay a large lump sum up front and can access funds as needed at each stage of the project.
For this reason, a HELOC is also a great option for tackling some small to medium-sized projects. You may want to update your bathroom, add a new front door to your home, or add recessed lighting to your living room. We don’t know exactly how much each project will cost. Therefore, a HELOC gives you the flexibility to make payments as work progresses.
When is a home equity loan the best option for your home improvement needs?
Home equity loans are a good option for large, one-time home improvement projects. You can get a proposal for the total cost of your project so you know how much you will have to borrow. For example, if a homeowner wants to add a second floor to her home, she might choose a Home She Equity Loan to raise the necessary funds all at once.
Home renovation projects with the highest return on investment
When it comes to home improvements, return on investment (ROI) refers to the value that a particular home improvement adds to a home’s selling price. For example, if his current home value is $300,000 and he spent $50,000 renovating the kitchen, his ROI on renovating the kitchen would be 80% if the value of the home increases by $40,000 (to $340,000). Masu.
Of course, our home is our personal space. Home improvement decisions usually involve factors of personal taste and preference, as well as financial considerations. However, some of his best ROI on home improvement projects include:
Things to consider before applying for a HELOC or home equity loan
If you’re considering a HELOC or home equity loan to finance your next home improvement or renovation project, consider the following:
- Credit score and income: Both types of home loans good credit score and proof of income. The higher your credit score, the more favorable terms (including interest rates) you will be offered. Your income will be used to determine whether you can afford to pay the mortgage or his HELOC payments.
- Your home value: The amount you can borrow depends on the value of your home and the amount of equity you have built up in it. Typically, you can borrow up to 80% of the home’s value.
- Current interest rate: The interest rate you get on a home equity loan or HELOC is based on current average interest rates, whether fixed or variable. Therefore, if interest rates are low, it may be a good time to lock in your home equity loan at a lower rate. If you think interest rates will go down in the future, consider a variable rate HELOC.
- Tax implications: Interest paid on a home equity loan may be tax deductible depending on how the funds are used, but interest paid on a HELOC may not be deductible. Please consult a tax professional before making any decisions.
Apply for a HELOC or home equity loan!
At Union Bank, we understand that home improvement projects can be both exciting and overwhelming. That’s why we’re dedicated to helping homeowners in Vermont and New Hampshire make informed decisions about home improvement financing options. Whether you’re considering updating your kitchen, adding a deck, or making another renovation, it’s important to understand the difference between a HELOC and a home equity loan. Union Bank can help you achieve your home improvement goals and increase the value of your home with expert guidance and a wide range of financing options. Don’t let confusion get in the way of the excitement of renovations and updates.Please visit one of our location Fairfax, Hardwick, Berlin, Jeffersonville, Jericho, Johnson, Lyndonville, Morrisville, St. Johnsbury, Stowe, Shelburne, St. Albans, Williston, Groveton, Lincoln or Littleton, or Talk to one of our loan experts Find the best mortgage option for your specific needs today!
