Home equity loan rates in Maryland have driven many homeowners to seek better ways to pay for their home renovations. Expensive remodeling may be outside your current budget or conflict with your long-term savings and investment planning.
Using a HELOC or Home Equity Line of Credit, Maryland homeowners can borrow against their equity and pay for their home renovations without taking out a home equity loan. Continue reading to learn how HELOC can help you renovate your home while staying flexible on your repayment plans.
What are the Benefits of a HELOC?
A home equity line of credit is a loan with a variable interest rate. While many potential options exist for homeowners to take out loans to pay for renovations, many Maryland homeowners use a HELOC due to its many advantages.
Here are the five best reasons that you should consider a HELOC to pay for your remodeling:
Lower rates
While interest rates are variable, they tend to be lower with a HELOC loan than other lines of credit, such as credit cards and personal loans. This is because your home equity and credit standing sets your HELOC interest rates.
HELOC lenders may also offer a draw period, often up to 10 years, during which you only have to pay interest. While this will increase the principle after the draw period ends, it can make payments more manageable during the first few years while completing your renovations.
Credit boost
Paying off a HELOC on time can boost your credit score, though opening the credit may initially lower it. Since raising your credit score is an essential step to refinancing, you may be able to pay for your renovations and secure a better interest rate at the same time.
Additionally, homeowners can use extra HELOC funds to pay off other debts, such as high-interest credit debt, and raise their scores that way. So long as you make the required payments on the HELOC loan as per your agreement, most lenders enforce few, if any, restrictions on how the funds can be used.
Flexibility
HELOC loans only calculate repayments and interest based on the money you use. This means that you have the flexibility to borrow more or less to keep up with changing renovation plans.
With other lines of credit, such as home equity and personal loans, homeowners must borrow a lump sum, regardless of how much they need. They may restrict your access methods as well.
HELOC lenders usually allow debit, check, and ATM fund transfers and online banking options. Some even offer flexibility in terms of the interest rate, allowing homeowners to convert the loan to a fixed rate.
Tax Benefits
A HELOC allows homeowners to deduct interest on their tax returns for HELOC funds used directly or indirectly in home renovations, including material purchases and labor.
Even though the deduction has a cap determined by your outstanding mortgage debt, this benefit can allow Maryland homeowners to save on their renovations indirectly by getting a higher tax refund. Note that each expenditure must be itemized for the deduction to count. Always consult a tax professional for your specific situation.
High Limits
HELOC lenders tend to have high limits since home renovations can be expensive. Most lenders offer six-figure loans for homeowners to take advantage of these benefits regardless of their renovation needs.
Your home equity sets the credit limit, usually up to 80-90% of your equity stake, depending on the lender’s specific terms. Notably, the equity calculations account for the HELOC payments, meaning your mortgage debt and prospective HELOC loan factor into the total home debt when your lender sets your credit limit.
With the right financial conditions, Maryland homeowners can take advantage of these high limits to put their home renovation bill under one payment.
Is a HELOC Right for Me?
As with any financial decision, a HELOC, despite having great benefits, does have some requirements to consider that many be a disadvantage for some. Those lower interest rates are variable, as opposed to the fixed interest rates of most home equity loans, meaning homeowners may only sometimes be in control of the factors that impact their payments. This should be factored into budgeting for a HELOC.
Also, HELOC loans require using your house as collateral, which may be a risk some homeowners are unwilling to take. Since you will be borrowing against the home’s equity, market price drops may also limit your ability to borrow in the future.
For many homeowners, with the right planning, a HELOC is the perfect solution for their needs. Working with a local provider can provide additional assurance.
Contact Woodsboro Bank for Professional Help With Home Equity Evaluations, HELOC Loans, and More
Our experienced team at Woodsboro Bank will examine your financial situation, including outstanding debts and equity, to determine whether a HELOC loan is right for you. Call us to schedule a consultation and learn how our team can get you started on your home renovations the right way.