Using Home Equity for Home Renovations

Wondering what you can do with home equity you’ve acquired? We’ve got some good news…you can do a lot! The equity in your home (which is the value of your home exceeding how much you owe) can be tapped into to improve your home, pay down debt, purchase additional real estate, or achieve any other financial goals. 


Learn more about how to use home equity line of credit (HELOC) loans here.  


What is a HELOC?

A home equity line of credit (HELOC) is a loan you can take out on your home based on the equity you’ve gained. Equity is the appraised value of your home that exceeds any mortgage you’re paying off. So, let’s say you bought a home for $100,000 and you have $80,000 left on the mortgage. If the house is now worth $120,000, you have $40,000 in equity. HELOCs let you draw money out as you need it, up to a certain amount. But, are HELOCS a good idea?


The collateral on a HELOC loan is the house itself, and the interest rate on the funds you access are often variable, meaning it can go up or down during your period of repayment. While that is the more traditional HELOC, today, some lenders are giving borrowers the opportunity to transfer variable interest rate HELOCs to a fixed rate loan. 


5 Ways to Use a HELOC

If you’re asking yourself: is a HELOC a good idea? Consider the fact that while rates have recently gone up, they’re still much lower than any standard credit card interest will likely be. In general, it’s the lower interest rates that make a home equity line of credit (HELOC) one of the more affordable ways to borrow money. 


Curious how to use equity in your home? Some of the top ways you can decide on how to use a HELOC might include: 


  1. Home Renovations
  2. College Tuition
  3. Debt Consolidation
  4. Vacation
  5. Wedding Expenses


1. Home Renovations

With a HELOC, you can make valuable updates to your home that add to its value. This can be particularly lucrative if and when you sell. For example, you can use a HELOC to add on additional square footage, add or update a home office, install a backyard patio, or complete a new, modernized kitchen or bath remodel. 


All of these home improvement ideas are great uses of a home equity line of credit. Because some home renovations can add to the overall value of your home when it’s time to sell, it’s worth it to do your research and talk to a local real estate agent to see the potential impact any renovations might have in terms of your home’s value. 


2. College Tuition

It’s no secret that college tuition is climbing every year. Your home’s equity can help pay room and board, books, or other expenses related to higher education. Money from a HELOC can also go towards basic living expenses for your college student, alleviating some of the stress that often comes with the college experience. 


3. Debt Consolidation

Credit card interest rates can be as high as 24.99%!  Not to mention, carrying high balances on your cards can have a negative impact on your credit score, making future financing more difficult to obtain and often more expensive. 


Using a HELOC to pay down or off credit card debt and other high interest loans can help you reduce your debt-to-income ratio faster, potentially saving you thousands of dollars.


4. Vacation

Sometimes, you just need to get away. Who couldn’t use a vacation? But just because it’s something you want to do, doesn’t mean it’s always feasible. A HELOC loan, though, might be an affordable way to take some time away with the family, without breaking the bank.


When you use your HELOC loan to help finance your next excursion, you can book a cruise, buy airline tickets, rent a vacation home, or plan a multi-stop international adventure with a much lower interest rate than booking your vacay on credit cards. 


5. Wedding Expenses

From flowers, to limos, to tuxes and desserts, weddings can be a memorable, but very expensive day!  A HELOC is a great way to help pay for that special day, without paying exorbitantly high interest rates associated with putting things on your credit card. 


HELOC Alternatives

If you don’t want to go the HELOC route, you still may have some options to access money for whatever your financial needs are. You might consider taking a personal or home equity loan out, or you could try doing a cash-out refinance. 


Home Equity Loan

Home equity loans are similar to HELOCs in that they’re based on the difference between the value of your home and the amount you owe on your mortgage loan. The difference is that a home equity loan is a one-time lump amount you borrow, whereas a HELOC is a revolving line of credit you can borrow against and pay off multiple times. 


Cash-Out Refinance

You don’t always have to use a HELOC loan to tap into your home equity. You can also choose to do a cash-out refinance. 


With a cash-out refi, you’re taking out a new mortgage on your home in an amount that’s more than what you currently owe. Your new mortgage will include the original balance of your old loan, plus additional funds that you’ll “cash out” and use for whatever you want or need.  


Note that the amount you can cash out on a refi will be relative to your home’s value, less your current mortgage balance. 


Unlock Your Equity with Island Federal

Home ownership can be a powerful financial resource. When you look at all the opportunities, answering the question: what can you do with home equity becomes exciting. Your equity can give you access to funds you might not be able to find anywhere else. Not to mention, there’s pride that comes with owning a home and being able to tap into cash as you earn equity. 


Find out how to use home equity with Island Federal today. We can help you use the equity you’ve built up to make a positive financial change in your life. Whether it’s home improvements, paying off debt, or planning for a life-changing event, a HELOC can open a whole new world for you. 


Ready to learn more about how to use a HELOC to gain financial freedom? Get started today.