Video: Put Your Home Equity to Good Use

With home prices rising at a pretty good clip, you probably have some usable equity in your home. Borrowing against that equity is not always a great idea, but if you are reinvesting the money to make necessary or value-added improvements to your home, utilizing equity might be the way to go.

Whether you choose a home equity loan or a home equity line of credit will depend on several factors including interest rate, repayment schedules, and usage. Lenders generally cap use of equity at 85% of your home’s value, and similar to a mortgage you will be using your home as security for the loan. In addition, there are various tax implications, so be sure to check with your tax or financial advisor.

So what would be considered necessary improvements? Any major home maintenance, roof repair, heating and air conditioning upgrades, an energy audit updating insulation and efficiency, and health and safety concerns.

Improvements that might add value include; energy efficient windows, reasonable kitchen and bath remodel, energy saving appliances. Paint and carpeting can be a relatively inexpensive upgrade for which the return easily exceeds the output.

One note of caution and a consideration.

Always consider cost vs return. It is never good practice to improve your home beyond the values in your neighborhood.
What will an appraiser do? If at any point in the future, you’re planning to sell your home, an appraiser will not place the same value as you do on a high-end gourmet kitchen or an extravagant botanical garden in the back yard.

Video: Put Your Home Equity to Good Use
For your convenience we’ve provided a transcript directly below the video.

Video Transcript:

Need money for an important project? You might be able to finance it using the equity in your home.

A home equity loan and a home equity line of credit (HELOC) are two options.

With a home equity loan, you get a lump sum from a lender and make monthly payments. The interest rate and payments are typically fixed. But if you borrow a lot and the market dips, you may be left with little to no equity left.

With a HELOC, you get a line of credit and can use it in various amounts at different times. Your payments may vary significantly depending on the amount of credit you use each time, and interest rates.

Tapping into your home’s worth is a serious decision. Speak to a professional and weigh your options.

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