Using a HELOC for Home Improvement
If you have a mortgage on your home that you have been paying for a while or put a large down payment on, then your home has probably earned some equity.
Equity is the difference between the amount you owe on your home and what your home is actually worth, based on a home appraisal. For example, if your home is worth $250k and you owe $150k on your mortgage, you have earned about $100k in equity on your home. The equity in your home will increase as you pay down the balance on the mortgage and as the value of your home appreciates over time. If you are looking to make improvements on your home and hopefully add value, you may be interested in a Home Equity Line of Credit or HELOC.
Using your home equity is a great option for home improvements or remodeling projects, because you are using your home’s value to borrow money against and then put money back into your home. This equity can be used for an upcoming sale or for long-term value added.
A HELOC works well for home improvements because the loan is not disbursed as a lump sum, and you can take more money out as you need it, up to the maximum amount of the loan. This period is called a draw period, where you will be making interest-only payments for a set period of time. Once the draw period ends, you can no longer withdraw funds and must begin paying back the principal and interest of the loan.
A HELOC can be used for an ongoing home remodeling that’s done room-by-room over the course of several months or years, or a big project that may need additional money as the project goes on. Again, increasing your home’s value by putting money back into your home is one of the major benefits of a HELOC.
HOME EQUITY AND ROI
The equity in your home doesn’t automatically increase based on the amount of money you put into your home. The amount of actual return on investment depends on what you are doing with the investment. Remodeling your kitchen will usually result in an equity increase, whereas a remodel that focuses on your specific use of the home may not. One thing to consider when remodeling your home using equity is whether the project will lead to an increase in your home’s value.
Your return-on-investment (ROI) in a home remodel or improvement project is calculated by the percentage of money spent on a project that you would recoup if or when you sell your home. If you don’t plan to sell your home for many years, the ROI in this case would be the appraisal value.
Do you have plans to renovate, remodel or improve your home in the near future? If so, how are you planning to finance your home improvements? You just may want to consider a HELOC.
Not all members will qualify for a mortgage with Nymeo. You must qualify for membership with Nymeo to be considered for a loan. Credit decisions are based on several factors, such as creditworthiness of applicant(s), capacity to repay, and value of collateral.