With the economy showing signs of life and the jobless rate beginning its descent Americans are getting back to appreciating some of life’ luxuries - their homes. Over the past few years, home improvement was on the back burner and pressing economic issues became front and center. Home improvement was the last item on many homeowner’s “to do” list and paying bills took a priority.
However, as people get back on their feet and squirrel away a little more money, they are adding paint to their home’s exterior, replacing windows and upgrading bathrooms.
Denise Majeski of Gurnee, Ill says that fixing up her 25 year-old home was a better alternative to moving.
"Initially we were thinking about moving. But that would require a mortgage and additional amounts of money. We can do a home improvement at a pace that we can afford."
Now is also one of the best times for home improvement because home equity loan rates are still low. During the housing boom, homeowners were also intrigued with home improvement, but didn’t have access to rock bottom rates like they do today.
Additionally, investors have found that fixing up newly purchased distressed or foreclosed properties has been more cost effective thanks to low rates.
Now that spring has sprung in many parts of the country, mortgage brokers may be offering special rate deals on home equities.
For the week of April 18th, home equity rates are down averaging 6.64% for 10 years and 6.50 for 15 years. Home equity line of credit (HELOC) rates are holding steady at 5.13%.
The Difference Between a Home Equity Loan and Home Equity Line of Credit
While both products are tied to the equity in your home, a home equity loan delivers a lump sum money to the borrower, with a fixed payment whereas a HELOC acts similar to a credit card--you only borrow what you need.
For home improvement projects such as one major renovation such as a new pool or an addition, a home equity loan might be the better choice. However, if you have several projects such as adding a new roof and remodeling the kitchen, a HELOC is may be more advantageous.
In terms of costs, home equity loans often have a higher interest rate, comparable to what you would see from a first mortgage. Like a fixed rate mortgage, your payments stay the same throughout the life of the loan.
With a HELOC, you can select either a fixed or variable rate product. While the rate is typically lower, it fluctuates according to prime, providing more uncertainty than with a home equity loan. The benefit of the HELOC is that you have no closing costs and can borrow as much as you need. Borrowers can repay the loan with as little as paying only interest each month.
Both HELOC and home equity loan interest may be tax deductible and, if you don’t make payments, you could risk losing your home.
Start your search for the right home equity product with a mortgage company, Your mortgage broker will examine your financial situation, home improvement needs and cash flow to arrive at a home equity that is comfortable for you.