Money & Career
Tap Into your Home Equity for Home Improvement
8/1/2020 1:00:00 PM

Home Equity for Home Improvement


Kitchen need a face lift? Outgrown your living space? Time for a new roof? Finally ready to put in that pool? If you’ve been waiting for the right time – and the money – to make needed improvements in and around your home, you may be overlooking one simple solution: your own home equity. 


According to Jamie Schiro, Vice President and Westlake Market Manager for Lakeside Bank, a home equity line of credit can be a great way to get the money you need for home improvement projects. She explains that a home equity line of credit is a revolving line of credit based on the amount of equity you have in your home. "When you purchase a home, you are basically purchasing an investment. This tangible piece of property is something that has a high value, both now and in the future. As you pay off your mortgage, you will continue to 'gain and own' more equity in your home. Once you have paid off your mortgage, you would then own 100% of your home's value. This is equity - the value of your home that you own."


Most people spread their home investment over 20 or 30 years. These payments provide your accumulated equity, the difference between how much your home is worth and how much you owe on your current mortgage or mortgages. For example, if you financed your home purchase for $250,000 and you’ve paid off $50,000 (not including interest), you have access to $50,000 worth of equity. This means you can re-borrow a percentage of that amount to pay for other things in your life. The amount of equity you are approved to borrow can be closed as a home equity loan or a home equity line of credit.  If you open a home equity line of credit, it allows you to make draws on your line, it works much like a credit card.  "Once your home equity line of credit is approved for a certain amount, you can borrow what you need, pay it back in full or partially, and you will have access to your available credit again ,” says Schiro.  "An added benefit of using home equity for financing is that the interest can be tax deductible. In fact, this is the only type of interest consumers pay that is still tax-deductible.” 


A home equity line of credit can be used for any type of expense: home improvement, vehicle purchase, college expenses and more. "It’s also a good idea to have this type of credit available as an emergency back-up plan,” says Schiro. "Having it approved and available will give you access to funds if you have an unexpected expense and need access to funds.” 


The main difference between a home equity line of credit and a standard home equity loan is a line of credit gives you the flexibility of advances. Your loan balance can go up and down as long as the line of credit is open.  A home equity loan allows a person to borrow money from a financial institution using their home’s equity as collateral and make monthly payments only.  "In essence, you are taking out a second mortgage when you get a home equity loan. You will get a specified amount of money, which is repaid in monthly payments over a defined period,” explains Schiro. "The amount of the loan is set and when it is paid off, the loan is closed. You’ll have to apply again in order to access your equity if you want more funds. In contrast, once you qualify for a home equity line of credit, you can access available funds whenever you need them.”


Schiro says although both a home equity loan and a home equity line of credit are convenient and affordable ways to get needed funds, they aren’t for everyone. "Any time you tap into your home’s equity, you have to carefully evaluate the financing structure. Your home is a valuable asset and shouldn’t be put at risk. Make sure you don’t use all your equity – even if a lender is willing to let you do so. I usually recommend that you try to leave 15% - 20% of your equity, over and above your debt, untouched. This will help protect your investment in your home and make sure you don’t get in over your head.”


The most practical way to use a home equity line of credit is to reinvest it in your home in the form of home improvements. "The key is to make sure whatever you do adds to your home’s value, which will only increase your equity for the future,” says Schiro. "Kitchens and bathrooms are usually the critical areas to focus on in order to add real value to your home and to ensure that you get the most benefit from using your equity.”


She also stresses that when using a home equity line of credit, you have required monthly payments,  just as you would with any other type of credit. "You don’t want to risk your home, or your ability to access your line of credit, due to missed or late payments. As with any type of loan or credit, don’t borrow more than you can afford.”


For more information about a home equity line of credit, call the Lakeside location nearest you or visit www.mylksb.bank. 

Posted by: Kristy Armand | Submit comment | Tell a friend

Categories: Finances

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