subject: Using your Home Equity for Renovations [print this page] Using your Home Equity for Renovations Using your Home Equity for Renovations
For homeowners, the advantage of having a place to call their own is at times set off by the lack of flexibility. As your circumstances change or your family grows, the home you live in must also undergo changes to accommodate new needs. For those who live in rented accommodations, these changes can be met by simply moving to a new home. Home owners often resort to making improvements to the existing home or renovating it. Such modifications are typically very expensive and your savings may not cover all the costs. Home equity loans and lines of credit allow you to use the equity in your home for remodeling and renovations.
What is a home equity loan?
Home equity loans are based on the amount of equity built up in your home. That is, you can borrow against your home up to the amount you have already repaid in your primary mortgage on the home. Your home being your single largest and most expensive asset, this translates into a huge sum of money. This kind of money is difficult to arrange quickly from other sources, and if you do, it adds a huge burden of debt on you.
A home equity loan is often more cost effective than other loans because of the comparatively lower interest rates. The home is the collateral in this loan and this reduces the risk for the lender. This lower risk means lower interest rates on this loan. You save on every interest payment you make resulting in significant savings by the end of the loan term.
Another advantage with home equity loans is that they are relatively easier to qualify for, compared to conventional non collateral loans. As your home is being used as collateral, there is a reduced risk of loss for the lender even if you default. This means that he can afford to be more flexible about your credit score. For those with a mediocre credit rating, where other loans may be unavailable or prohibitively expensive, a home equity loan may be just the right option.
Home equity line of credit
A home equity line of credit is another good way to use the equity in your home for the purpose of renovation, re-modeling or repairs. This is a line of credit that has the paid up value of your home as the upper limit. You can borrow funds up to this upper limit as and when you want them throughout the term of the credit line.
The greatest advantage of this kind of equity loan is that you need not borrow the entire amount and can restrict yourself to exactly the amount you need and when you need it. This means that you also pay interest only on what you have borrowed from this line of credit for the period over which you have availed it.
These kinds of home equity loans are especially useful when you cannot accurately predict how much the home renovation, modification or repair will cost. Instead of borrowing a large amount and paying interest on the entire sum, you can borrow the money when you want and make repayments more conveniently.
