Why You Should Use Your Home Equity for Your Summer Projects

As Memorial Day has just passed, the unofficial start of summer 2023 has begun. While summer can bring longer days and warmer weather, it also allows homeowners to take stock of their homes and provides a new opportunity to do some repairs and renovations. Although repairing your garden or roof in winter can be challenging, summer provides a perfect window to complete delayed improvements.

That said, funding these projects could be tricky. Major home improvements could cost thousands of dollars. While traditional credit alternatives should be explored, homeowners may be better served by tapping into their home equity to pay for their planned summer projects. This can mainly be done in two ways: home equity loan or one home equity line of credit (HELOC).

Using home equity in this way has many advantages, three of which we will explore below. To get started, check your home equity loan options here now to see how much you qualify to borrow.

Why You Should Use Your Home Equity for Your Summer Projects

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

It’s cheaper than some alternatives

Not all of your credit options are created equal, especially when it comes to how much you’ll need to pay to use a specific type. Interest rates on personal loans, for example, are often in the double digit range (depending on your credit score and other factors). And credit card rates have been expensive lately, hovering around the 20% mark in recent months.

However, interest rates on home equity loans And HELOC are currently around 8%. And, if you opt for a home equity loan, you’ll be locked into that lower rate, regardless of outside volatility in the broader rate environment. While these rates are a bit higher than they have been in recent years, they are still significantly lower than some other options. These savings will add up over time, especially if you plan to borrow a large amount of money.

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

It’s tax deductible

Home Equity Loans And HELOC are a great way to finance home repairs and renovations due to their tax deduction qualifications. If you’re using either to pay for one of your summer home projects this year, chances are you’ll be able to deduct the interest you paid when it comes time to file your return. income next spring.

“Interest on home equity loans and lines of credit are deductible only if the borrowed funds are used to purchase, build, or substantially improve the home of the taxpayer securing the loan,” the IRS says online. “The loan must be secured by the taxpayer’s primary or secondary residence (qualified residence) and meet other requirements.

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

It comes with higher limits

If you apply for a credit card, you may be limited by the line of credit for which you are approved. The same restrictions apply to a personal loan. But home equity loans could potentially net you hundreds of thousands of dollars to use however you see fit.

Remember that the equity in your home is not just calculated by the amount of your mortgage balance that you have paid off. It is also determined by the current value of your home. So if you live in a part of the country that has seen a dramatic increase in house prices in recent months and years, you might have a substantial amount of money to gamble with.

How much money? Let’s say you originally took out a $500,000 loan, but have since paid off your balance to $350,000. In the meantime, the value of your house has gone up to $650,000. In this case, you would have $300,000 in home equity. Most lenders will allow you to deduct 80% to 85% of the net worth you have accumulated, giving you access to $240,000 to $255,000 in this example.

See how much you could personally borrow here now.

The bottom line

While there are many ways to finance a real estate project this summer, a home equity loan or HELOC may be the best way to do it. These options are generally less expensive than credit cards and personal loans and, when used for qualifying home repairs, may qualify for an interest tax deduction. They can also give homeowners a greater amount of financing to use than some other alternatives. 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 borrowed money or you risk losing your home in the process.