One of the joys of homeownership is making your house a home. Your home – with your style and personality reflected in paint colors, accessories, and focal points. It’s not unusual for home buyers to start making mental lists of house updates while they’re checking out an open house. Whether you’ve lived in your home for six years or six hours, chances are, you’ve got a things-I’d-like-to-do list.
For those who’ve been in their home a few years and have built up some equity (equity is your home’s market value less your mortgage balance, or the amount of your home that you own), it can be a smart decision to use that equity to pay for home improvements. A Home Equity Line of Credit, or HELOC, is a common financing option for homeowners looking to make some updates.
HELOCs are a great option for do-it-yourself projects. Similar to a credit card, a line of credit is money that’s available for you to spend, but you aren’t charged interest on the funds unless you actually spend it. For example, let’s say that you are doing some kitchen renovations. You start by purchasing some new countertops, cabinets, and sink. You pick out your flooring and new appliances, but you aren’t ready to put them in yet. Until you pay for those items, you won’t pay interest on them.
Even if you use a contractor for your project, you can negotiate to pay some expenses up-front and some at completion, allowing you to pay more toward principal than interest at the beginning of your project.
HELOCs often feature longer terms, or lengths of time to repay your loan. If you take out a 10-year HELOC for a home improvement project, but pay it off in 5 years, your HELOC is ready and waiting for your next financial need. It could be a new home improvement project, a car, or even an unexpected expense. The funds are available for whatever purpose you need, and you do not have to reapply at the bank while the line is open.
Union Bank & Trust makes it very easy to access your HELOC funds. You can use a HELOC Visa debit card to pay for home improvement materials from a website or store. Your HELOC is separate from your regular checking account; the debit card provides you with easy tracking aside from other household expenses. Funds can also be transferred to other UBT accounts using UBTgo, stopping by a branch, or calling Customer Support.
In a rising-rate environment, it’s important to consider the ultimate financial benefit when borrowing. If you are remodeling a kitchen or bathroom, typically you’ll see an increase in your home’s value at the completion of your project. Taking an exotic vacation? Since your HELOC is secured by your home, your rate is likely lower than if you were to pay for a trip with a credit card. So if you decide to use your HELOC on a large purchase, it could still be a smarter option than other, higher-interest credit available.