Are you thinking about remodeling your home? If you are – but aren’t sure how to pay for the project, then you need to consider a Home Equity Line Of Credit (HELOC). One of these loans can cover the costs of the remodeling, allowing you to pay it back over time without having to completely refinance your home.
What Is A Home Equity Line Of Credit (HELOC)?
In order to explain how a Home Equity Line Of Credit (HELOC) can cover those remodeling costs, we first need to go into some detail about what those loans are. They differ from a traditional home mortgage refinance because they use the equity that you’ve built up in your house. This equity is the difference between what you owe on your home through your mortgage and the amount of money that it’s worth.
Basically, a Home Equity Line Of Credit (HELOC) works kind of a like a checking account, only you need to pay the money back. Once you take out the loan, the money is placed in an account where you can access it. As long as the loan is open, you can remove money, pay it back, and then repeat this over and over. This is how it differs from a typical mortgage refinance. With one of those refinance loans, you receive any extra funds in a lump sum, and you can’t keep going back to them once they are depleted.
How Can a Home Equity Line Of Credit (HELOC) Finance My Remodel?
The cost of redoing your home can be fairly large. Things like new flooring, updated appliances, and even brand new windows aren’t inexpensive – and you need to pay for home improvement company who’ll install and update all of those things for you. Rather than save up for years (or refinance your home outright to cover the costs), you can take out a Home Equity Line Of Credit (HELOC).
How would a remodel work with a HELOC? Well, when you get approved for the HELOC, you’ll receive access to an account (usually a checking account) with that money in it. This is separate from your standard, traditional checking account. However, since the HELOC is attached to this type of account, you’ll be able to write checks on it in order to pay for your remodeling expenses. This is much easier than running to the bank for a cashier’s check every time that you need to use those funds.
Once your remodel is complete, you can begin repaying those funds. However, if you have any remaining in the account and want to tackle another project, you can. You aren’t limited in any way. It’s a very useful method of paying for a home remodeling job, without having to pay for the entire thing in cash. The flexibility allows you to remain solvent, which is good should you need to come out of pocket for an emergency or surprise expense while the project is in motion.
How Does a Home Equity Line Of Credit (HELOC) Differ From a Traditional Refinance?
A typical refinance involves redoing your mortgage. You might end up with a little additional money when you do the refinance, based on the amount of the loan. The main problem with this is that the money ends up in an account, and once you run through those funds, you can’t borrow from them again without doing yet another mortgage refinance.
With a HELOC, as long as the loan is in an open period, you can pay back the money and then use it again when you need to. This makes it easier to tackle large home improvement projects and things like that. Plus, the repayment periods (and amounts ) for the HELOC are slightly more flexible, which makes home remodeling projects even more affordable.
If you plan on remodeling your home, then you should consider taking out a HELOC. It will provide you with the flexible funds that you need to pay for everything from the materials to the labor. Even if you plan on doing most of the work yourself, you still need to cover those materials – or else you won’t have anything to work with!