Why You Should Use Home Equity for Summer Projects

With Memorial Day just passed, the unofficial start to summer 2023 has begun. While summer may bring longer days and warmer weather, it also allows homeowners to take stock of their homes and a new opportunity to complete some repairs and renovations. While fixing up your backyard or roof in winter can be challenging, summer offers a perfect window to complete overdue improvements.

That said, financing these projects can be tricky. Major home improvements can cost thousands of dollars. While traditional credit options should be explored, homeowners may be better served by tapping into them Home is equal to pay for their planned summer projects. This can be done primarily in two ways: a Home equity loan or a Home Equity Line of Credit (HELOC).

There are multiple benefits to using home equity this way, three of which we’ll explore below. To get started, check out your home equity loan options now to see how much you’re eligible to borrow

Why You Should Use Home Equity for Summer Projects

Here are three reasons why you should consider using your home equity to pay for your summer home projects.

It is cheaper than some alternatives

Not all of your credit options are equal, especially when it comes to how much you have to pay to use a particular type. Personal loan interest rates, for example, are often in the double-digit range (depending on you Credit score and other factors). And credit card rates have been expensive of late, hovering around the 20% mark in recent months.

But the interest rate Home equity loan And HELOCs Currently around 8%. And, if you go the home equity loan route, you’ll be locked into that lower rate regardless of any outside volatility in a higher rate environment. While these rates are slightly higher than they have been in recent years, they are still considerably lower than some other options. Those savings will add up over time, especially if you’re planning to borrow a substantial amount of money.

Explore home equity loan rates and options here to determine your eligibility.

It is tax deductible

Home equity loan And HELOCs A great way to finance home repairs and renovations due to their tax deductible eligibility. If you used this year to pay for one of your summer home projects, chances are good that you’ll be able to deduct the interest you paid when it’s time to file your taxes next spring.

“Home equity loan interest and lines of credit are deductible only when the borrowed funds are used to purchase, construct, or substantially improve the taxpayer’s home that secures the loan.” The IRS Explained online. “The loan must be secured by the taxpayer’s principal home or second home (eligible residence) and meet other requirements.

“Generally, you can deduct home mortgage interest and points reported to you on Form 1098 on Schedule A (Form 1040), line 8a,” the IRS says. “However, any interest shown in Box 1 of Form 1098 from a home equity loan, or a line of credit or credit card loan secured by property, is not deductible if the proceeds are not used to purchase, construct, or substantially improve. Qualifying home .”

It comes with high limits

If you apply for a credit card, you may be limited by the credit line you are approved for. The same restrictions apply to a personal loan. But home equity loans can potentially provide you with hundreds of thousands of dollars that you see fit.

Remember, home equity is more than just that to calculate By how much of your mortgage balance you’ve paid off. It is also determined by your current home value. So, if you live in a part of the country that has seen dramatic growth house price You may have had a considerable amount of money to play with in recent months and years.

how much money Let’s say you initially took out a loan for $500,000 but have since paid off your balance for $350,000. In the interim, your home is worth $650,000. In this case, you would have $300,000 in home equity. Most lenders will let you put down 80% to 85% of the equity you build, paying $240,000 to $255,000 to access this example.

See how much you can borrow personally here now.

Bottom line

While there are multiple ways to finance a home project this summer, a home equity loan or HELOC may be the best way to do it. These options are generally cheaper than credit cards and personal loans and, when used for qualified home repairs, they may qualify for the interest tax deduction. They can pay homeowners a larger amount to use than some other options. All that being said, home equity loans and HELOCs use the home in question as collateral, so make sure you have the ability to repay the loan or you risk losing your home in the process.