Even in the North Bay, winter can take a toll on your home’s infrastructure, which can drive up energy costs. A smart way to keep these bills under control is to use your home’s equity to finance energy-efficient home improvement projects. Such upgrades can keep you warm safe and save you money during the cold, wet season.
Benefits of Using Home Equity
One of the benefits of homeownership is the additional lending option that becomes available to you in the form of equity. As you pay down your mortgage, the value of your home increases, creating equity that, once you reach a certain percentage, can be tapped for borrowing. These equity lending products are a home equity loan and a home equity line of credit (HELOC).
One of the main benefits of using equity lending is that the interest rates are typically lower than those on personal loans or credit cards. This is because home equity lending uses your home as collateral, making it a secure loan. According to WSJ.com, interest rates for equity loans are impacted by market conditions, lender requirements, Federal Reserve policies and your financial situation. There are also potential tax advantages for home equity lending, which include tax deductions on interest paid and certain home improvement projects.
Tapping your home’s equity is a smart, flexible borrowing tool. Learn more about them below:
- Home Equity Loan: A home equity loan lets you borrow a lump sum of money at one time, which will be repaid in fixed, monthly payments over a term that includes the principal and interest. The interest rate on this loan is fixed, meaning it will remain the same throughout the life of the loan. This loan is a good option for home improvement projects or other major expenses.
- Home Equity Line of Credit (HELOC): A HELOC is a line of credit that you can use for ongoing borrowing during the initial draw period, which is typically 10 years. During this time, any funds borrowed are subject to interest-only monthly payments. After the draw period ends, the loan goes into repayment period, during which you start repaying the principal and interest and can no longer borrow further from the loan. The interest rate is fixed at the current market rate at the time the repayment begins. This loan is a good option if you have a list of projects lined up but don’t need the entire loan amount right away. It gives you more flexibility when borrowing over the 10-year draw period.
Types of Winter Home Improvements
There are home improvement projects for every season. In winter, these upgrades tend to focus more on keeping your home dry and warm while lowering your heating bills. Here are a few winter projects to consider, according to Redfin.com.
- Insulation Upgrades: Updating or adding new insulation is a great way to regulate indoor temperatures because it keeps your home warm. Project costs will vary, but investing in this upgrade can help lower energy costs over time and increase property value.
- Window Replacements: Replacing old, drafty windows not only reduces cold drafts and lowers energy costs; it also can enhance natural light and reduce outside noise if you get dual-pane windows. Cost estimates for this project could run up to $15,000, according to The Home Depot, depending on the number of windows and types of materials used.
- Heating System Upgrades: Depending on your home’s age, it may be time to replace your heating and cooling system with a more energy-efficient one. More homes are upgrading to a heat pump system instead of natural gas or electric heating, ventilation and air conditioning (HVAC) system. These pump systems move heat from the air or ground instead of generating it, which lets them us much less energy than a regular furnace. Also, since this is an energy-efficient home improvement project, it may qualify for federal, state and local tax credits that can offset the initial, higher, upfront costs.
- Roof Repairs and Maintenance: Your home’s roof experiences a good amount of wear and tear. From extreme heat waves and high winds to heavy downpours and snow, your roof may need repairs and regular maintenance to remain in good shape and avoid winter water damage. Having your roof inspected by a licensed professional, along with having your rain gutters cleared, are home improvement projects that promote the longevity of your home.
Many improvement projects will depend on your home’s age and condition. While some work may not be necessary right away, having a clear understanding of the types of projects will help you plan better and borrow smarter. Using home equity lending lets you tackle these more expensive projects at lower interest rates, so you’ll save money.
Financial Considerations
Before you apply for a home equity loan or HELOC, you’ll need to assess your home’s current equity to see if there’s enough available to lend to you. Start by determining your property’s value based on nearby property sales of similar homes or “comps.” Then subtract your existing mortgage balance from that value to see how much equity may be available to you. Most lenders will require you have at least 20% of equity available in your home before considering you for an equity loan.
Tips for Borrowing Smart
When you’re ready to borrow, shop around for a local lender with the lowest interest rates for equity loans. Start with credit unions such as Travis Credit Union. You don’t have to get your home equity loan from the same lender as your mortgage. If you have enough equity in your home, you can borrow from another lender.
While you're shopping for lenders, also look for licensed, professional contractors to do your projects. Get at least three quotes for each project, check their references and cross-reference with agencies such as the Better Business Bureau to see if there have been any complaints or cases brought against them. When starting a project, be sure to keep track of all the expenses so you remain on budget.
How Travis Credit Union Can Help
Travis Credit Union offers both home equity loans and HELOCs to help with your home improvement projects. TCU also offers energy-efficient loans that do not require using your property as collateral.
Additionally, we offer mortgage refinancing options, including a cash-out refinance that lets you tap into your home’s equity with a single, new mortgage. Our competitive interest rates and knowledgeable mortgage lending team can help you take the right steps for your project. Get started today at Traviscu.org.