Should you use a home equity line of credit for home improvement?

A Home Equity Line of Credit (HELOC) can help homeowners finance a home improvement project with a lower interest rate than a credit card and interest-only minimum payments. In some cases, there may be tax benefits.

Using a HELOC for Home Improvement

As the weather improves, you might be thinking about the next big home improvement project you would like to tackle.

A Home Equity Line of Credit (HELOC) can be invaluable here.  A HELOC is one of three main strategies for accessing your home equity. With an interest rate lower than personal loans or credit cards, it makes your home improvement projects much more affordable.

Here are three reasons you should consider using a HELOC with SF Fire Credit Union this to finance your home improvements – and a reason why you shouldn’t.



1. A low interest rate

A Home Equity Line of Credit will generally have a lower APR than credit cards because, while it is a variable rate, it’s secured by the equity in your home. You’ll pay less in interest when financing your project with a HELOC, which will save you a lot in the long run, especially if you can pay more than the minimum monthly payments each month: with SF Fire Credit Union, you have interest-only minimum payments for the first ten years, also known as the “draw” period.

View HELOC Rates today  



2. Pay only on what you borrow

A home equity line of credit is revolving line of credit. You only start paying interest on a balance when you actually draw funds against that line of credit; so, if your home improvement project will be done in stages, you only need to draw what you need when you need to make incremental payments, limiting the amount of interest generated on the balance due.



3. Possible tax benefits

While home improvements aren’t always tax deductible, there are a few situations that might earn you a tax benefit.

  • Installing energy efficient equipment such as solar panels
  • Renovations for medical purposes, such as installing a wheelchair ramp
  • Exemptions on capital gains taxes if you eventually sell the home

Using a home equity line of credit is an affordable way to pay for these projects and secure the tax benefits; additionally, the interest you pay may be tax deductible. Of course, you’ll want to consult a tax advisor about your financial situation to confirm what you can claim.



And why you should think twice …

1. It’s your home

The very reason why the interest rates are low is a reason to pause before proceeding. Your home acts as security for your HELOC, and the interest rate is variable.  If you can’t keep up with payments, you could lose your home.

Before you rely on your home equity to pay for a large project, ask yourself:

  • Do I have a solid budget in place?
  • If the interest rate increases, will I still be able to afford to make the payments?

If you borrow against your equity but accrue a large balance you can’t repay, you might find yourself in difficult circumstances.


We’re here to help

After considering these points, you may still have questions about your particular situation. Our Real Estate Loan Officers are here to help you answer questions about whether a HELOC is a good option for you.

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