As a member of DoverPhila Federal Credit Union, you have several options for funding a home renovation. You can open a HELOC, or a Home Equity Line of Credit, which is an open credit line that’s secured by your home’s value for up to 10 years. You can also fund your renovations with an unsecured loan or use your credit cards.
One of the best ways to fund a home renovation, though, is by taking out a HEL, or a Home Equity Loan. Let’s take a closer look at this popular loan option.
What is a home equity loan?
A home equity loan is a loan secured by a home’s value. When homeowners open a HEL, they receive a fixed amount of cash in one lump sum. Most home equity loans have a fixed interest rate, a fixed term, and a fixed monthly payment.
What are the advantages of a home equity loan?
The primary benefit a HEL has over other loans is its fixed interest rate. This means the loan is not subject to increasing interest rates and borrowers know exactly how much their monthly payment is for the entire life of the loan. Also, the interest paid on a home equity loan is often 100% tax-deductible (consult your tax adviser for details).
Another benefit of the HEL is its repayment plan. Borrowers make payments toward the loan’s interest and principal throughout its life. At the end of the loan term, the entire amount is paid.
Are there any disadvantages to taking out a home equity loan?
While a home equity loan offers the funds needed to cover a home improvement project with an affordable repayment plan, it’s important to know about every aspect of a HEL before applying.
Taking out a HEL means paying several fees. It’s best to find out how much these fees amount to before applying for the loan.
Also, when taking out a home equity loan, borrowers receive their funds in one shot. This makes a HEL a great option for homeowners who know exactly what kind of work they plan to do on their homes. However, if they only have a vague idea about the renovations they want to do and how much they cost, then they may end up borrowing an insufficient amount.
Finally, borrowers need to make a monthly payment on their loan throughout its life. Before taking out a HEL, be sure you can afford the payments.