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If you’ve been in your house for a few years, you might be thinking that it’s time to move on to something bigger and better.
But buying and selling a home in today’s heated housing market can be a stressful and competitive process. Home prices shot up 7 percent in May, and they’re projected to rise another 5 percent over the next year. The increases reflect a lack of available homes for sale in many markets.
For savvy homeowners, there may be a way to get the home of your dreams without the hassle and expense of moving. Rather than selling your current home and buying another one, upgrade the house you already have. If you like your neighborhood, you don’t need to find a new property with an open floor plan and granite kitchen counters. Instead, put those amenities into your own house.
Financing such a project may be easier than you realize. Increasing property values have unlocked the equity available to many homeowners, and you may be able to borrow more money than you think for a renovation via a Home Equity Line of Credit (HELOC). A HELOC allows you to borrow against the equity you have in your home on an as-needed basis.
Homeowners collectively now have $5.4 trillion worth of equity that they could access, the highest amount on record and 10 percent more than the 2005 peak. (Accessible equity is the amount available to borrow without dipping below an 80 percent loan-to-value ratio on the property.)
The flexibility of HELOCs makes them a smart way to finance home renovations because you can draw down funds as you need them, rather than having to take (and pay interest on) a lump sum loan. That means you could make withdrawals strategically to coincide with regular payments to a contractor as a job progresses and avoid borrowing money you don’t need yet at the start of a project. Plus, you’re using the borrowed money to increase the value of the asset that you’re borrowing against (your home), and you could potentially write off interest paid on HELOCs used to improve your home on your taxes. Please consult your tax advisor regarding deductibility of the interest on a HELOC.
A HELOC is also a good option for those who already have a mortgage rate locked in below current interest rates, since it allows them to borrow additional money without refinancing their low-rate mortgage.
It’s a move that more homeowners seem to be making. Nearly 350,000 HELOCs were originated in the first quarter of the year, up 14 percent from the same period in 2017. Economists expect remodeling to hit an all-time high this year and continue growing through 2019.
The beauty of renovating rather than moving is that you don’t have to worry about recouping the investment right away. That’s good, since few projects provide an immediate dollar-for-dollar return on the investment.
Instead, you get to relax in your home and enjoy the finished project—whether it’s a new deck or a renovated kitchen—designed to meet your specifications, without feeling guilty about the splurge.
We are committed to helping you reach your potential by providing personalized solutions. Our dedicated colleagues can help you find the right product to help you reach your goals. To learn more about home equity, please call 1-888-514-2300, visit us online, or Ask a Citizen at your nearest Citizens Bank branch.
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