Using a Home Equity Line Of Credit to fund Home Improvements

 

Effective HELOC Uses - Home Improvements

A Home Equity Line of Credit has many uses, but one of the best ways to get the most out of a HELOC is to use it to fund projects with variable costs, such as home improvements or repairs.  Unlike other forms of borrowing, a Heloc loan allows you to vary the amount you have borrowed at any time, and only incurrs interest charges on the amunt actually used.  Anyone who's ever tried their hand at a DIY home improvement project will be well aware of the habbit these types of projects can have of running long on both budget and time....

Funding Home Improvements

Most home owners will at some stage find themselves contemplating the need to add, modify or repair thier home.  When this comes up, these projects can turn out to be fairly costly.  Whether you have an olde parent coming to live with you, need to create extra space or need to make mobility and accessibility changes to the property the end result will be the same.  Most home renovation projects will run into the thousands of dolloars, sometimes tens of thousands, and for must of us that means securing funding.

Funding Options

When you're looking at home to fund a renovation or rehabilitation project on your home there are a few common options:

  • Credit Cards/Overdrafts
  • Unescured loans/Cash Advance/Payday loans/Hard Money
  • Equity Loans
  • Specialist FHA Home Improvement loans
  • Home Equity Lines of Credit

Credit cards are not a good way to expensive projects.  The interest rates on these types of credit are amonng the highest around, and unless you pay them off very quickly the interest will soon add up and become tough to sustain.  Likewise Unsecured Loans should be avoided if at all possible - While these may seen convenient, they are really just a shortcut to massive repayments.

Equity Loans are another popular choice and are a better option that either of the first two but they do have one large downfall - you have a fixed  amount of money to work with and pay interest on all of it right from day one.  This means that you are immediately paying maximum amounts of interest, and also if the project runs over budget you may find yourself short of funds and unable to complete the renovations.  Because an Equity loan is a fixed amount, it's tempting to keep the loan size to a minimum in order to keep the interest payment down, unfortunately this can also mean you don't have enough money if unexpected or under-budgeted costs arise.

 
 

  

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Title 1 FHA loans are a good option - if you qualify - but not everyone does, and again the loan is a fixed size  which means inefficient and unnecessary Interest charges.

Home Equity Lines of Credit to Fund Renovations  

A Home Equity Line of Credit however combines the flexibility of the credit card options (credit on hand as and when you need it, while only paying on the actual amount you use) with the lower interest rates of an Equity Loan.  Unlike a standard Home Equity Loan, you have the flexibility to take out the largest Line Of credit you can - the total size of the credit facility isn't a problem, only the amount you actually use.  In most cases a Heloc is the ideal funding mechanism for a variable cost project like a home rehabilitation or improvement.