A home equity line of credit (HELOC) allows homeowners to borrow against their home’s equity. In many cases, this will enable them to boost the value of their home by financing renovations and other additions, increasing their resale value, improving the state of the house, and receiving exclusive tax deductions in the process.
Continue reading to learn about home equity loan rates in Maryland, including how homeowners can use HELOC to improve their home value and finances, regardless of market changes.
What is a HELOC?
A HELOC is a line of credit that homeowners can take out against their home’s equity, defined as the home's market value minus the outstanding mortgage balance. As more of the mortgage is paid off, the decrease in the principal balance (not including interest payments) will contribute to increases in equity.
For example, if you own a home worth $418,000, around the median home value in Maryland in 2024, and still owe $150,000 on the mortgage, your home’s equity will be $268,000.
Unfortunately for Maryland homeowners, their home equity can decrease despite paying off the principal, usually due to property depreciation or market changes. If the property is neglected, it may be appraised at a lower value, reducing and potentially reversing the equity buildup. Shorter loan terms, larger down payments, extra mortgage payments, and home improvements can contribute to better home equity growth.
How Homeowners Use a HELOC
The money available in a HELOC can be used to pay off the mortgage. It can also be rerouted to other essential areas to increase the home's value and improve the homeowners’ financial standings. Strategically using a HELOC to boost home value can allow new and established Maryland homeowners to achieve financial stability regardless of market conditions.
Home Improvements
Home improvements can increase the market value of a home, reduce its insurance premiums, and improve the living experience. However, renovations are unattainable for many homeowners due to their mortgage payments and other expenses. Using a HELOC, Maryland homeowners can spend the funds on renovations to improve their home’s equity, thus increasing their line of credit and having even more resources to work with.
Common home improvements that can increase home equity include kitchen and bathroom remodels, exterior improvements, room conversions, safety and security upgrades, and improvements to energy efficiency. With an open HELOC, homeowners can take on multiple projects sequentially while taking advantage of their higher loan limits compared to traditional lines of credit.
Tax Benefits
Money used to increase the safety and value of the home may be tax-deductible, resulting in further savings that the homeowners can put back into the house. According to the IRS, tax-deductible home improvements must meet specific criteria, such as being permanent additions, improving energy efficiency, or adding substantial value to the house.
Debt Consolidation
A HELOC can consolidate debt by simplifying the homeowners’ repayment schedule. Instead of making multiple monthly debt payments, homeowners can use a HELOC to pay off outstanding debts and focus on home improvements. The flexibility of a HELOC is what opens the door for homeowners to use their credit to boost their home’s value in ways other than making lump sum payments on their mortgages.
Investment Opportunities
The funds afforded by a HELOC can be used to bolster a homeowner’s savings, which allows them to boost their home’s value by staying ahead on their mortgage payments and avoiding other new lines of credit. This money can also be used to grow and diversify an investment portfolio, pay business expenses, or purchase a second property.
Many homeowners become trapped in their loan repayment schedule and need help to improve their finances through investment. A HELOC provides the funds they need to achieve lower interest rates, eliminate lines of credit, and grow their nest eggs.
What is the Difference Between a HELOC and a Home Equity Loan?
Both a HELOC and home equity loan borrow against the home’s equity, but the borrowing and repayment processes differ in several important ways. A home equity loan or “second mortgage” pays a lump sum and charges a fixed interest rate for repayments, while a HELOC opens a revolving line of credit to be used however the homeowner needs.
Partner With Woodsboro Bank to Use a HELOC to Increase Your Financial Stability
If you own a home and want to open a line of credit on your home’s equity, a HELOC can give you the financial freedom to make home improvements, pay off debts, and bolster your savings. This is how many Maryland homeowners have increased the value of their homes and achieved greater financial stability despite rising market prices. Contact Woodsboro Bank today to learn how a HELOC can boost your home’s value.