Picture this scenario – you have already paid a significant portion of your mortgage and what you’ve paid is already more than what you currently owe. You go around your property and you realize that certain areas are due for some tender loving care. They’re already worn down and remodeling is inevitable.
However, you have one problem. Where do you get the money to fund such an undertaking?
We offer a solution —- your home equity.
Your home equity refers to the portion of your home that you’ve already paid off. If your house is worth more than your standing mortgage balance, you may be able to use that equity to pay for home improvements or renovations.
There are two ways to tap your home equity: home equity loans or home equity line of credit (HELOC). Before we go through the ways you can spend your home equity, let’s compare the two briefly.
Home Equity Loan vs HELOC
Home equity loans have a similar structure as do traditional mortgages. They usually have a fixed schedule of payments that include both principal and interest. They are essentially second mortgages and typically come in terms of 10, 15, 20, or 30 years.
Home equity loans are great because the payment is structured, making budgeting much easier. While waiting to execute your remodeling plans, you can set aside the money on an interest-bearing account so that you can earn something from it. You also get the whole amount up front, which is ideal if you’re planning on a huge project.
HELOCs, on the other hand, are similar to credit cards. During the draw period, you can withdraw any amount and just pay interest. After the draw period, you can no longer withdraw additional funds and you will need to pay the principal plus interest.
HELOCs are great if you do not mind the fluctuating interest rates. It means that your monthly payments might vary now and then (which in a way, makes budgeting a little bit challenging). The good thing is that if you only need a small amount from your home equity, then you’re not obliged to use the entire equity balance and take out what you need.
Where you can spend your home equity on
We want you to be responsible for spending your home equity as your homeownership is on the line. That’s why you should spend it on the following:
If you’re planning to sell your home eventually, a modern, well-kept kitchen is one of the things homebuyers are always looking for. If you’re planning on spending your home equity on kitchen makeovers, this will probably get you the quickest way to ROI.
Similar to kitchen remodeling, a clean, functioning bathroom also attracts the interest of homebuyers. Focusing on these essentials and making sure that your would-be buyers understand their importance will help you recoup your expenses sooner if you do decide to sell the house. If you’re an end-user, well, nothing is more satisfying than walking into a bathroom where you can recharge and relax, right?
By the time you’ve racked up enough equity to outweigh your mortgage balance, you’ve probably occupied your home for quite some time. Your roofing might have gotten a lot of wear and tear over the years, so replacing it might be a good and practical choice.
Alternatively, you could also remodel the front side of your house to give it more curbside appeal. Repainting, adding wallpaper and changing the tiling in your bedroom and living room are also cost-efficient ways of spending your home equity.
If you’re wondering where to get the funds to renovate your home, home equity loans may be a great option. Interest rates in home equity loans are significantly lower than getting a second mortgage. Home improvement projects can be expensive enough, and even a small difference in the interest rate can save you thousands of dollars over the years.