Buying a home helps people feel a little more secure about their financial future. As the years pass and the mortgage decreases, a homeowner will own more and more of their home. The more home that is owned, the more equity is available.
Home equity is how much of your property you actually own. Thus, your home equity is how much of your property's value you've paid off. It can be calculated by looking at the house's current market value and subtracting the remaining balances of your home loan(s). This is an asset that can be borrowed against or cashed in when the home is sold.
Home Improvement Loan: Good or Bad Idea?
Planning Your Homeowner Lifespan
Rarely do people stay in the same home for their entire lifetime. The homeowner's lifespan is how long a person expects to own their current home. This can be difficult to determine as the homeowner's lifespan might depend on when children go off to college, as a big house may not be needed. Other homeowners move as they near their age of retirement. Even if this date is far into the future, choosing a timeframe for a moving day is helpful.
Who Should Get a Home Equity Loan?
A home equity loan is beneficial for making home improvements. The interest rate on a home equity loan is typically lower than a credit card or any other type of loan, which is why it may be more advantageous to utilize a home equity loan. Another advantage is that the interest on a home equity loan may be tax-deductible, which would need to be discussed with a tax consultant. The loan should be paid back easily and on time, otherwise, the home is at risk.
Using Home Equity for Home Improvements
Remodeling is a necessity for most homebuyers, especially if the homeowner isn’t completely in love with the way the house looks or functions. While some improvements are made immediately, the majority are likely to happen over the course of the homeowner's lifespan. Depending on this lifespan, some renovations or improvements could be done multiple times; the initial brand-new kitchen update when buying the house may not seem so contemporary and cutting-edge fifteen years down the road.
If the market value of a home rises, there is a larger equity cushion, which may make home improvement more attractive, as the loan will have an even lower rate. Additionally, when nearing the end of the homeowner's lifespan and beginning to make plans to sell, the homeowner could make improvements to potentially raise the selling price of the house.
Options Other than Getting a Loan
If there isn’t enough equity in the house to make home improvements or your homeowner lifespan is short, here are alternatives to consider other than a loan:
- Purchase a home warranty. A home warranty is an annual service contract that covers the repair or replacement of important appliances and systems components that break down over time.
- Make preventative inexpensive repairs only. Do preventative repairs within budget then wait on extra updates.
- Prioritize energy-saving improvements. If the home purchase hasn’t been finalized, negotiate the price based on items like older windows. The money saved on purchasing energy-efficient windows may help decrease future expenses.
As a homeowner, your home equity is one of the most valuable assets you own. When planning the lifespan for homeownership, home equity can be used more strategically and for a greater lifetime benefit.
Metro Credit Union in Omaha, Nebraska
It may be hard to choose the right tile for your new bathroom or right cabinets for your kitchen, but finding the right lender is easy. Take the next steps to secure a home equity loan with Metro Credit Union:
- Apply online, over the phone, or in-person.
- Fast application turnaround with competitive rates.
- Finance up to 90%-110% Loan to Value (LTV).
Give us a call at 402-551-3052 and be thrilled at just how low your payment can be. Our Personal Bankers can find the home equity loan that's right for you and give you quotes on current interest rates and closing costs. It may be hard to choose the right tile for your new bathroom or right cabinets for your kitchen, but finding the right HELOC lender is easy. During these times of uncertainty, you can trust Metro Credit Union to do what’s right. We are your local advantage.