Using a HELOC vs. Home Equity Loan for a Remodel
Most homeowners will agree that remodeling your home can be a great way to breathe new life and energy into your living space. Not only does it make your house more enjoyable, but it can also help increase its value. If you're considering renovating your home but don't know if a home equity line of credit (HELOC) or a home equity loan is the right option, you've come to the right place.
Finding out the best way to finance a remodel can be tricky — and this is where understanding the difference between using a HELOC vs. a home equity loan for a remodel comes in handy. First, let's gain a good understanding of a HELOC and a home equity loan, and then we can look at the two loans to determine which one you should use for your next project or remodel.
A HELOC is a type of revolving credit or variable-rate loan that allows you to borrow against the equity in your home. You can use the funds from a HELOC for almost any purpose, including home improvements. Benefits of a HELOC is that it is a revolving line of credit and you only pay interest on the principal amount of money you borrow —unlike a home equity loan, which is a lump sum that must be paid back with interest regardless of how much you use.
A home equity loan is another option for financing your remodel. Like a HELOC, this type of loan allows you to borrow against the equity in your home. However, unlike a HELOC, a home equity loan is typically a fixed-rate loan with fixed monthly payments. From a budgeting perspective, this can make budgeting for your remodel easier since you'll know exactly how much your monthly payment will be.
Both HELOCs and home equity loans can be great options for financing a remodel. Ultimately, it will come down to your individual needs and preferences, as both have pros and cons. HELOCs offer more flexibility in terms of payment amounts, but the variable interest rate could mean that you end up paying more in interest over time. On the other hand, home equity loans generally have lower interest rates and fixed payments, making budgeting for your remodel easier.
Home equity loans might make more sense for specific major projects or one-time expenses because you get an upfront lump sum of funds to use, and most of the time, it's with a fixed interest rate and set monthly payment.
For DIYers or someone who flip houses, HELOCs might be a better option which allows you to borrow on a revolving basis, very much like a credit card, so you have access to money when you need it, but you're not paying for the funds borrowed until you use it.
If you're unsure that HELOCs or home equity loans are the right choices, here are other options.
Remodeling your home is an investment—whether you decide to use a HELOC, a home equity loan, or an alternative, it's important that you're comfortable with the terms and confident in your decision. Whatever route you choose, make sure that you're considering everything from interest rates to payment amounts. Here at ProFed Credit Union, we focus on helping you achieve your financial dreams.
If you have any questions, want to become a member, or need more information on choosing between HELOC vs. a home equity loan for a remodel, please get in touch with ProFed or schedule an in-person or virtual meeting. We're here to support you and provide personalized solutions for your financial needs.