Q: What’s the best way to pay for a home renovation? 

A: You have several choices when it comes to funding a home renovation. Let’s first take a look at some common choices and the disadvantages that may not make them the best option.

1.) Home Equity Loan 

A home equity loan is a loan that’s secured by your home’s value. Home equity loans allow you to borrow a fixed amount of cash, which you receive in one lump sum. 

Cons:

• Upfront fees can be high.  
• Receiving all the funds at once can push you into spending more than you need.
• The amount you borrow may not be enough.
  
  

2.) Credit cards 

Credit cards can work for minor touch-ups, but funding bigger projects this way can have devastating effects.  

Cons:

• You may be stuck paying interest of 15% until you pay off the balance on your card.
• Your credit score may be negatively affected by the large, unpaid balance on your card.
  
  

3.) Personal loans 

These short-term loans may or may not be secured by a form of collateral. 

Cons:

• Upfront costs and interest rates can be high.
• Receiving the entire amount in one lump sum can lead to overspending.  
  
  

4.) Retail credit cards 

Some retailers encourage customers to finance home renovations on a store credit card. 

Cons: 

• Retail credit cards can have very high interest rates.
• With so much credit extended to you, you may be tempted to overspend.
  
  

5.) Merchant loan 

A merchant loan is taken out against a business’s anticipated revenue. 

Cons:

• Merchant loans have high interest rates.
• You’ll need to pay a fixed percentage of your sales toward the loan repayment. If your sales spike, this puts you at a disadvantage.
  
  

There are so many loan options and strings attached! How can you fund that home renovation?  

Enter the home equity line of credit (HELOC). 

A HELOC is an open credit line secured by your home’s value. HELOCs have adjustable interest rates and have a “draw” period for accessing the funds. 

Here are the benefits of a HELOC: 

You’ll save money 

HELOCs help you stick to your budget since you can withdraw money from your line of credit as needed, instead of all at once. Upfront costs for HELOCs also tend to be lower than those of other loans. 

Flexible terms 

Some lenders allow you to convert large withdrawals into fixed-rate loans. Some also extend your credit line when the draw period ends. 

Also, because you’re only paying interest on the money you withdraw, you’ll have the freedom to take out a larger line of credit and decide how much of it to use later. 

You’re improving your home’s value 

It makes sense to borrow against your home’s equity in order to add to its value.  When you sell your home, a HELOC may actually pay for itself, and then some. 

Call, click, or stop by Health Care Family Credit Union today to get started on your HELOC application!