If you have renovation projects on the mind but aren’t certain how financially feasible they are for you, a home equity loan (sometimes called a “second mortgage”) may be the cushion you need to make them happen.
This loan allows you to tap into your home’s equity. It can be cost-effective and could increase your home’s value later on because of the improvements. Plus, you’ll get to enjoy the renovations in your home.
To be eligible for a home equity loan, you must have positive equity in your home, in addition to meeting standard lending conditions. Typically, you can pull cash out in the amount of around 80 to 85 percent of your home’s value minus what’s owed on your mortgage. If approved, you’ll receive the funds all at once and then repay the loan at a fixed rate over a preset number of years.
Using a home equity loan for home improvements has several benefits:
Increased home value: Improvements made to your home can add equity to it by increasing the resale value. You can consult a real estate agent to find out specific high-return improvements that can be done.
Set payback period: Equity loans can often be paid back at terms of up to 20 years, and sometimes more. During the application process, you can work with your lender to determine a payback period that fits your budget.
Lower interest rate: Home equity loans often have lower interest rates than unsecured loans or credit cards because they are secured by your home.
Comfort of living: An obvious benefit to using a home equity loan for remodeling is enjoying the upgrades you make to your home while living there.
Tax benefits*: Based on your personal financial situation, you may be able to deduct the interest you pay on your home equity loan. Your tax preparer can guide you on how much may be deductible.
As always, we recommend consulting a trusted lender to be confident you’re making informed financial decisions. Team Mandi is here to help with any questions you have about home equity loans or homeownership. Please don’t hesitate to contact us!
*Premier Mortgage Resources does not provide tax, legal or accounting advice. This material has been prepared for educational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Individuals should consult with licensed tax, legal and accounting advisors before engaging in real estate transactions.