Looking for a renovation loan? Consider a HELOC

Looking for a renovation loan? Many U.S. homeowners are turning to home equity lines of credit (HELOCs) to upgrade their kitchen, remodel a bathroom, finish their basement and tackle other home improvement projects.

HELOCs are attractive due to their flexibility and potential affordability. They allow you to borrow only what you need, when you need it, instead of receiving a lump sum upfront. They also typically offer lower interest rates than other financing options — like personal loans or credit cards. HELOCs also allow you to make interest-only payments during the draw period, which can help you keep your costs low while you are completing a project.

Why a "renovation loan" isn't always the best fit

While exploring financing options, many people search for "renovation loans" because it sounds like the right option for home improvements. However, they are typically referred to personal loans with fixed terms and higher interest rates than HELOCs.

Personal loans often work well for small, one-time projects with clearly defined costs — like replacing flooring or upgrading appliances. However, they lack the flexibility needed for larger projects or longer-term, ongoing renovations that will be completed in phases. If your project runs over schedule or you encounter unexpected costs, you could find yourself short on funds. You could also end up paying interest on funds you're not using.

What a HELOC can offer

A HELOC's flexibility is why it works so well for renovations. If you're considering a HELOC in lieu of a renovation loan, here are some of the benefits:

• Revolving line of credit: A HELOC is a revolving line of credit that lets you borrow against the equity in your home. Similar to a credit card, it allows you to borrow money as needed — up to your limit — instead of receiving all of the funds at once. This also means you only pay interest on what you actually use, which can lead to significant savings over traditional loans. Your available credit is replenished when you repay the money you borrow.
• Long draw period: A HELOC also has a long draw period, which may be up to 10 years. This flexibility gives you the breathing room you need to finish a project without feeling rushed — or to complete multiple projects. You could renovate your kitchen this year, your bathrooms next year, and add a deck the following year — without having to apply for new financing each time.
• Lower interest rates: A HELOC typically offers lower interest rates than personal loans or credit cards. Because they are secured by the equity in your home, lenders view them as less risky and are more willing to offer lower rates. This can significantly reduce the cost of borrowing.

When a HELOC makes the most sense

A HELOC is ideal for renovations that evolve over time or have unpredictable costs. Unlike fixed loans that require you to estimate your total expenses upfront, a HELOC gives you the flexibility to adapt. This can come in handy if you change your mind on a design element, you're not sure how much materials will cost, or when unexpected issues arise during construction.

A HELOC also makes sense for multi-phase upgrades, like kitchen and bath remodels, or for completing multiple projects over several years. You can complete a project, repay some of your balance and then borrow again for your next project.

Don't overlook the convenience of a HELOC for smaller projects too. Whether you're planning a landscaping project, installing solar panels or creating a new home office, having access to a line of credit gives you the freedom to work on improvements when you have free time.

What to know before you apply

You'll need sufficient equity in your home to qualify for a HELOC. Lenders will also review your credit and financial history during the application process. They'll look at your credit score, income, existing debts and other information to determine your eligibility and credit limit.

HELOC rates are typically variable, which means they can fluctuate over time based on market conditions. This can work in your favor when rates decrease, but it's important to keep in mind that potential rate increases might raise your monthly payments in the future. Before you apply for a HELOC, be sure to choose a lender who will guide you through the process so you will understand the terms and closing costs, and get all of your questions answered.

Explore your HELOC options with Citizens FastLine®

If you're looking into a renovation loan, a HELOC is a smart choice for your home improvement needs. Unlike loans that require you to estimate costs upfront, a HELOC is designed for real-life, multi-stage renovations that need flexible financing as the project evolves.

Find out how a HELOC with Citizens FastLine® could provide the flexibility you need and help you stay on budget as you complete your next project.

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