Give Yourself the Gift of Home Renovations

Would you like to receive an upgraded kitchen for Christmas? How about redoing the master bath? If you have solid equity in your home, you could use a HELOC to help finance the home improvements you've been considering. Financial experts share insights about the pros and cons of taking out a HELOC, and when it makes sense to do so:

What is a HELOC?

“A HELOC is a financing option that lets homeowners access equity they’ve accumulated in their home,” says Kyle Enright, the president of lending at Achieve, a digital personal finance company. That equity, he explains, is what’s left when you subtract your mortgage and any other debt on the home from its current market value.

Unlike a traditional loan, a HELOC gives you a revolving line of credit you can borrow from as needed, up to a set limit. Your home secures the credit line, so you generally need enough equity to qualify — and falling behind on payments could ultimately put your home at risk.

How does a HELOC work?

A HELOC works in two phases. First is the draw period, when you can borrow money as you need it, up to your credit limit...

“You have a set period where you get to use it like an open line of credit,” says Craig Garcia, the president at Capital Partners Mortgage, a specialty finance and mortgage lending company. “Ten years is the most common time frame.”

When the draw period ends, the repayment period starts. “Whatever you owe at that time now has to be paid back over the next 15 to 20 years,” Garcia explains. Your payments then cover both principal and interest, not just interest. Most HELOCs also carry a variable rate, meaning your rate (and your payment) can rise or fall over time.

When a HELOC makes sense

“A HELOC can make sense for a homeowner who has built up substantial equity in the home, who has a clear need and plan for using the cash and who is unsure how much they need to borrow and when they’ll need it,” Enright says. He points to a major home remodel as a good example.

When a HELOC may not make sense

Qualifying for a HELOC doesn’t automatically mean it’s the right move, though. Enright stresses borrowers should understand their terms, know when repayment starts and be honest about whether their budget can handle the payments if rates climb.

For more information on HELOCs, including the factors that influence your rate, read the full article here. If you are considering home renovations, First Federal Bank may have a solution that is right for you. Reach out today to learn more about using your home’s equity to make upgrades.

Source: USA Today

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