Pros and cons of using home equity lines to remodel
Home equity lines of credit are a great way to get the needed money now to remodel your home. Of course, like anything in life, there are pros and cons to using a home equity loan to remodel your home.
First, let's look at the pros of a home equity line of credit:
With a home equity loan, you can borrow as much money as you need within the loan limits. A home equity loan payment is similar to a credit card; you only pay interest on the balance of your loan, not the total line of credit.
You should use your home equity wisely. Home equity loans are tax deductible so that new kitchen can be a tax write-off. Many people find that it is easier to combine their first mortgage with the home equity loan to obtain one low fixed rate.
A home equity loan will also allow you to pay down the amount and re-use the available line of credit. This means that you can pay off the new kitchen, borrow the money again and remodel your bathroom.
Home equity lines of credit are wonderful for home remodels because the money is available as quickly as you need it. Many people who do wholesale real estate or home flipping strategies use home equity lines of credit. The driving factor for this is because you will have negation room with a potential buyer when you put the house back up on the market.
Home equity lines of credit are a great way to maintain and increase the value of your home. Additional rooms, pools, porches, garages, and guest homes can all be built with a home equity line of credit. This is a wonderful way to re-invest in your home and increase its overall value.
Now let's discuss the cons to a home equity line of credit:
Home equity loans are known for having variable interest rates. This means that you could be paying a higher amount for a small project that wouldn't cost you much money to begin with. Many people are able to combine their home equity loan with their current mortgage and lock into a smaller, set interest rate. Be sure to look into this option if you are considering a home equity loan.
There is also a change the lender could cancel that line of credit. Many lenders are canceling home equity lines of credit because of the decreasing value of homes. Most lenders are stating they do not want more debt on the house that it is actually worth. What this means for a home reconstruction project is, a different loan that could be a higher interest rate and will not be tax-deductible.
If you are unable to pay back the home equity line of credit, you risk loosing your home. Also, the balance will be due immediately once your home has been sold. Another thing to take note of is the set up costs to obtain the loan in the beginning. Some home equity loans also include annual fees and transaction fees.
Either way, be sure you aren't borrowing more money than you can reasonably pay back. While a new kitchen with granite countertops may look nice, it may be too expensive for you to afford at this time. Keep it simple and stay within a reasonable budget, which is the only way to ensure your homes value will increase as a result of your remodel. If you are planning to sell your home in the near future, keep your home remodel simple and clean. It is easier to sell a remodel that isn't custom to fit your needs.
Comments
Thanks for the article. It was really interesting and informative. Home equity lines of credit is a nice option. However, if a person is never gone through a home refinance, then there's a ton to know. I think its better to seek help from a reputed debt relief company like bills.com or freedom financial network.
Posted by: Zoe Sera | January 2, 2009 10:54 AM