Home Improvement Financing Tips
How to use home equity financing to fix up another property
If you own more than one property, you may wish to borrow against the equity in the higher-valued home in order to fix up another, thus boosting its equity. Whether it's remodeling the kitchen or installing a new roof, there are two types of home improvement financing options to help fund your project - home equity loans (also called home improvement loans) and home equity lines of credit (HELOC).
Home improvement loans
What is it? This home equity financing option allows you to borrow a single lump sum amount to be paid back to the lender in monthly installments over a term of five to 30 years. A home equity loan typically offers a fixed interest rate - one that will not change over the term of the loan. You may be approved to borrow as much as 80 percent of your home's value; an appraisal is typically required during the application process to help determine your home's market value.
When to use it: If your project is limited to a short-term renovation at your second property, such as remodeling a bathroom or kitchen, then an equity loan would be a good choice. A general rule of thumb to remember here is that if the project is finite in scope, then a lump sum home improvement loan can best fit your needs.
Home equity line of credit (HELOC)
What is it? A HELOC is a revolving line of credit, much like a credit card, but with lower interest rates. With a HELOC, you can withdraw as much or as little money as you want up to a specified maximum amount. If you choose a HELOC for your home improvement financing, you'll receive a variable interest rate based upon the Prime rate as published in the Wall Street Journal. During the initial draw period, which is usually 10 years, you are only required to make interest-only payments, though you are not restricted from making payments towards the principal. After the draw period, the repayment period is usually about 15 years and requires monthly principal and interest payments on the remaining balance.
When to use it: If you're looking to finance home improvements over the long-term, such as ongoing renovations to your second property, then a HELOC may be the right choice for you. Examples include adding a new roof one month, replacing your home's siding the next, adding a deck, etc.
Whichever home equity finance option you choose, be sure to read the repayment terms carefully so you understand your options and whether or not there are any fees associated with paying off your loan or closing your line of credit early. And remember, once you agree to a home equity loan or line of credit, you are using your home as collateral. Be sure to understand the terms and conditions of the loan or line of credit, and only borrow an amount that fits within your monthly budget.
Apply for home improvement financing from Citizens Bank to cover your remodeling project
When you're ready to start your home improvements, speak with a Citizens Bank Home Loan Advisor to discuss your home loan options or start the process of applying for a home equity loan or line of credit by completing a short contact form online today.