How to Use a HELOC for Home Improvement
With housing shortages and skyrocketing home prices across the country, many have opted to make home improvements rather than buying a new home. Others have made improvements to get their home ready to sell.
If you're considering joining the home improvement movement, paying for bigger projects might seem far off. But, you don't have to wait to love living in your home. That's where a home equity line of credit (HELOC) comes in.
What is Home Equity
Home equity is the part of your home's value that you own outright. It's the difference between the total amount your home is worth and what you owe on your home (your mortgage). It can be a valuable tool to help you build wealth over time as your home increases in value. The equity in your home can be used for just about anything, from home improvements or debt consolidation to education expenses and beyond. Whatever you plan to use it for, it's always a good idea to consult a financial advisor and think through your current and future financial situation and your goals.
How Does a HELOC Work
A HELOC is a line of credit that uses your home's equity to help you pay for home improvement projects, your child's education or other expenses, like consolidating medical bills or credit card debt. This can also be a great way to pay for renovations, add on a home office, or make some extra space for your kids.
There is typically a "draw period" where you can withdraw money from your HELOC, and you only pay interest on the amount you actually use. This draw period varies by lender, WaFd Bank's draw period is 10 years. After that, you'll begin paying back what you borrowed. This is repaid with monthly payments which are amortized, or spread out, over a certain number of years (15 years through WaFd Bank).
Qualifying homeowners may be approved to borrow a certain amount of money and access funds as needed. For example, if you are approved for a HELOC of $10,000 you can choose to use part of it to pay off medical bills now and the other part to pay for a home office remodel later on. If you don't end up withdrawing any money, you won't owe anything and you will not have to make payments. WaFd Bank doesn't charge a yearly fee, but some lenders do, so be sure to ask about that before applying.
A HELOC Provides a Readily Available Line of Credit
Similar to a cash out refinance, a HELOC gives qualifying homeowners the ability to borrow a certain amount of money and access the funds as needed without actually refinancing your home. If you do not end up withdrawing any money, you will not owe anything. This may be better than a cash out refinance as you will pay interest on the entire amount of your loan from the day you close, which might be higher than the interest rate you enjoy on your mortgage today. A HELOC is a nice security blanket for unforeseen events that life may throw at you. It will also give you the flexibility to withdraw funds, pay back the principal when you can, and even withdraw later during the initial draw period without paying additional lending fees.
A HELOC can be more affordable than making large purchases by credit card or by starting another type of loan if you qualify for a competitive interest rate and don't have to pay annual renewal fees. You may also qualify for additional tax deductions available for any costs or interest paid on your HELOC based on your situation. Please consult your tax professional regarding the deductibility of interest and charges.
WaFd Bank's HELOC Special
For a limited time, you could get a 1% discount on a HELOC with WaFd Bank! This way, you don't have to wait for interest rates to drop to take advantage of your equity. You'll get a fixed interest rate for the first six months you have your HELOC so long as you open or maintain a WaFd checking account with a recurring direct deposit and utilize EZ Pay, WaFd's automatic loan payment service.
After the six month introductory period, payments will be based on a variable rate, which may be subject to the loan to value percentage, credit score, property type (primary, second home, and investment property) and dwelling type. Talk with your neighborhood branch to learn more or give us a call at 800-324-9375.
Using Home Equity for Renovations with WaFd Bank
If you are ready to start on your own home improvement project, let WaFd Bank help you explore your financing options. Learn more or apply for a HELOC, or find your neighborhood loan officer at WaFd Bank.
WaFd Bank offers:
- No annual renewal fees
- Competitive interest rates (and discount off your interest rate for automatic monthly payments from your checking account through WaFd Bank)
- Closing costs paid by WaFd Bank for customers with existing home loans through WaFd Bank, or if the WaFd HELOC will be in first lien position, seeking up to $250,000 in lines of credit
- HELOCs for primary homes and second homes, including jumbo HELOCS up to $700,000
- HELOCs for investment properties (WaFd Bank is required to be in first lien position)
- Interest-only payments for 10 years
Contact us today to see if a HELOC is right for you or learn more about our other home loan solutions.
Check out WaFd Bank's HELOC calculator!
Use your home's equity to finance your next big project. Whether it's to pay for a home renovation or remodel, or pay consolidated bills, a no annual fee HELOC from WaFd Bank is often more affordable than using credit cards or other loans.
Try it nowAll loans subject to credit approval. Restrictions apply, contact WaFd Bank for further information.
** Texas HELOCs: Notice concerning extensions of credit defined by section 50(a)(6), article XVI, Texas constitution: Section 50(a)(6), article XVI, of the Texas constitution allows certain loans to be secured against the equity in your home. Such loans are commonly known as equity loans.
