Home Equity Line of Credit is Ideal for Remodeling

Home equity line of credit is flexible enough to meet all remodeling needs

Most people who buy a home are fortunate enough to find a property that fits their needs. They make the purchase, pay the mortgage, watch the equity in their home build, and live out their days in bliss. Some are not so lucky. Perhaps they live in an expensive market that prevents them from buying as much home as they need, or perhaps their needs change over time with the addition of new family members. Those in this group hope that some other solution will appear in time, be it a larger home purchase or a remodel or addition to the existing property.

A common answer to the problems posed in these situations is a home equity loan, which can be used to finance an addition to the house. Adding a game room, converting a garage or increasing the size of the kitchen are common remodeling projects that are funded by home equity loans. Lenders love these kinds of loans, as the default rate is low and the value of the collateral is actually increased by the very project the loan is funding. But what if the problem isn’t a lack of space, but simply a lack of taste on the part of a previous owner? What if the project is a do-it-yourself project with no definite schedule or budget? Is there a better financing option for these? Consider a home equity line of credit.

If you don’t have a problem of space but do have a problem of a green refrigerator, pink shag carpet and too many 1970’s wrought iron lamps, a home equity line of credit, or HELOC, may suit you best. A line of credit is a loan against the equity in a home, but instead of being presented in a lump sum, the loan is offered in an account that can be drawn upon as needed, using supplied checks or a credit card. This is ideal for those trips to the home improvement store, the appliance store or the local House of Carpet. No payments are due unless the account is drawn upon, and interest rates can be either fixed or adjustable, according to the wishes and needs of the borrowers. This type of financing is ideal for the homeowner who has purchased a fixer-upper that needs a modernizing or replacement of dated essentials, such as flooring, wallpaper, paint or light and plumbing fixtures. You can buy what you need, when you need it, and you only make payments when you actually do so. Even better, as the principal on the loan is repaid, the borrower may draw upon the loan again and again. The options with a line of credit are quite useful for ongoing, long-term projects.

For those with traditional remodeling needs, such as an addition to the home by a hired contractor, the traditional home equity loan would be a better choice, offering a fixed interest rate and fixed payments. For those with an open-ended remodeling or a do it yourself job, the HELOC or line of credit would be a wise choice.