Why a Home Equity Loan Might Be Your Best Option to Finance a Remodel

Aug 06, 2018
   

Over the past couple of months, mortgage rates have gone up several times. In fact, they’re now the highest they’ve been in seven years. Unfortunately for many hopeful house hunters, some analysts anticipate more hikes in the future.

Photo of a house

While those shopping for a new home may be following mortgage trends closely, an increase in rates can impact existing owners too – especially if you’re thinking about a significant remodel. 

One poll found that almost 60% of all homeowners plan to complete a remodel. How much will those remodels cost? About half of remodelers plan to spend more than $5,000.

If you’re thinking about a remodel down the road, then now is the time to think about how you’re going to pay for it.

Ideally, remodelers would have saved and could pay in cash; but for many homeowners, paying for a remodel could wipe out their savings (and then some!).

Unlike other financing options, a home equity loan allows you to lock in a fixed rate.

How does that benefit you? Unlike a line of credit or credit card product, with a home equity loan, your payment amount will stay the same - even if rates go up. 

One NewYorkTimes.com article reported that the average draw – or amount of the credit line that is in use – is about $50,000 nationally. On an amount that high, an increase to the interest rate could result in a sizeable change to the borrower’s total repayment amount.

What could happen to a monthly payment if rates go up? Moneyunder30.com breaks it down. (Note: Their figures are for a $200,000 mortgage, which is a higher amount than most home equity loans. But the moral of the story is the same…even a 0.25% increase in rates can make a big difference on your bottom line.)

Home equity loans aren’t just for backsplashes and new counters.

If you’re thinking about buying energy-efficient appliances or adding a third bedroom, a home equity loan could help you there too.

As with any financial product, you’ll want to do some careful research and talk to experts before you sign any paperwork.

Whether your remodel plans are slated for this summer or 2019, we’re here to answer any questions. Find out more about our home equity loans, or contact your neighborhood loan officer below.