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Written by:Credit Union ONE
August 29, 2022
Category: Home Tips

Cannot Move? Home Improvements are the new Move!

image to support article about Cannot Move? Home Improvements are the new Move!
It is no secret that the current housing market is not ideal for some buyers. With lower housing inventory and higher interest rates, some current homeowners who are unsatisfied with their current home might not be able to move at their convenience.

So, what options does that leave them with?

Instead of moving, they can improve their current abode. New more room? Add an addition on the home. Kitchen or bathroom too old fashion for current trends? Upgrade it to look like a Pinterest Board’s Dream. How can someone make all that possible? With their own equity sitting right under their feet, unused and waiting to be utilized.

What is Home Equity?
Equity is the difference between your home’s current appraised value and your mortgage balance. If your home appraises for $600,000 and you owe $300,000, your equity is 50 percent. So, for homeowners who want cash to improve their home, a Home Equity Loan could be a smart choice.

What can you use a Home Equity Loan for?
Home equity loan proceeds can be used for any purpose including:
  • Kitchen or bath remodel
  • New furniture or appliances
  • Furnace replacement
  • Debt consolidation
  • College expenses
  • And more

It may be possible to deduct the interest on a home equity loan when you use it to renovate your primary or secondary home. You cannot deduct the interest on a home equity loan you use to pay for college tuition, medical expenses, debt consolidation, or another purpose. You can, however, deduct the interest on a portion of your loan spent on your home, even if the rest of the loan was used for a nondeductible purpose. You should consult your tax advisor to see if this would apply to your situation. 
 
What are the benefits of a Home Equity Loan Compared to a Cash-out Refinance?
The process is usually quicker and less expensive than a cash-out refinance. Generally speaking, home equity loans have low, fixed interest rates since borrowers use their home as collateral. Since your home is a valuable asset, you may be able to borrow quite a bit.
You currently have a loan balance of $250,000.  You are looking to do some home improvements for $30,000. Your home currently appraises for $350,000. $250,000 + $30,000 / $350,000 = .80. Convert .80 to a percentage and that gives you the combined loan to value of 80%.
Home equity loans often come with closing costs and appraisal fees which you may be able to roll into your loan. However, Credit Union ONE has home equity loans with zero closing costs and no appraisal required!
Be sure to check the annual percentage rate (APR) of each loan when comparing offers from different lenders. APR includes both the loan’s interest rate and its fees. Your credit score, and home equity loan amount and term will determine your interest rate.  Relatively low interest rates plus terms of 10 to 30 years can mean affordable monthly payments. Feel free to contact with our lending team to learn which solution could work best for you here.
 
What are the benefits of a Home Equity Loan Compared to a Home Equity Line of Credit Loan?
With a home equity line of credit (HELOC), you can borrow smaller amounts as you need them and only pay interest on the money you truly need to borrow. With a home equity loan, you must choose a lump sum to borrow all at once and pay interest on the full amount. Which one would work best for you would depend on how you want to utilize your money.
 
When is a Home Equity Loan not a good option?
As with any loan, lenders want to be confident that a borrow will repay it. Typically to qualify, borrowers need a credit score of at least 620, and a steady income. But do not let these factors stop you from getting the loan you need, talk to our lenders about other products and exceptions!

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