by Darcie Duranceau
How a Home Equity Loan Can Help You Reimagine the Home You Already Love
Your home is more than a place to live; it’s one of your greatest assets. It can be the key to unlock growth and transformation. Your home’s equity can unlock the possibilities to a new kitchen, a finished basement, or a luxurious primary suite. As Denise Abshire of Security Federal Savings Bank says, “that is just the beginning of what you can accomplish with home equity.”
WHAT IS HOME EQUITY AND HOW DOES IT WORK?
“Home equity is the difference between what your home is worth (by current market standards) and the amount you still owe on your mortgage,” explains Denise. It is essentially the amount you would have left if you did sell that house and pay off the mortgage, but you don’t have to sell to gain access to that money.
AS A HOMEOWNER, YOU BUILD EQUITY IN THREE MAIN WAYS:
- Pay down your mortgage principal
- Make valuable upgrades to your home
- Allow your home to naturally appreciate with the rest of the market
You can access this built-up equity through a home equity loan or a Home Equity Line of Credit (HELOC). A HELOC is a type of mortgage that uses your home collateral. It gives you a revolving line of credit – similar to a credit card – that you can draw from as needed. This makes it ideal for home improvement projects or as a sort of savings in case of future, unexpected expenses. In most cases, a HELOC will have a variable interest rate, but repayment terms can vary from bank to bank.
SMART WAYS TO USE HOME EQUITY FOR HOME IMPROVEMENT
Denise, a mortgage lending expert with decades of experience, highlights the versatility of this approach. She observes that clients successfully use home equity to fund a wide array of projects, from largescale kitchen and bathroom remodels to building additions. While others use their money to pay a child’s college tuition, as a down payment on a new build, to consolidate debt, or they just keep it as a low-interest alternative to a credit card — home improvement remains the number one reason for seeking a home equity loan.
Using this strategy, you are not only making a current home more enjoyable but are also making a strategic investment that will likely yield a return when you eventually decide to sell. To maximize that return on investment, focus on kitchen or bathroom upgrades, creating outdoor living areas, or improving the structural and mechanical aspects of the home.
WHY NOW? A STRATEGIC MOVE IN A SHIFTING MARKET
In today’s market, many homeowners are enjoying historically low mortgage rates on their current homes. As a result, selling their current home to buy a new one means giving up that low rate. So selling may not be the best answer.
Denise Abshire points out that, “we have a promo rate right now on our HELOC of 2.99%* for six months.” By comparison, you might be looking at 6% on a new construction loan, and greater than 6.5% on a new home mortgage.
In a market with low housing inventory, a home equity loan allows you to create your dream home without having to compete with other buyers or settle for a house that doesn’t meet your needs. It’s a strategic move that honors the investment you’ve already made while empowering you to create the life you love right where you are.
