Using Home Equity to Boost Your Home's Value

As a new homeowner, you may be faced with a long list of improvement projects you'd love to tackle, if only you had the time and funding required. While time management is never easy, financing for projects that boost your home's value and spruce things up a bit is surprisingly easy to come by. One of the most common ways homeowners get the funds they need to complete these projects is through special forms of credit called home equity loans.

Understanding home equity

A home equity loan allows a mortgage borrower to tap into the money they've already paid toward the home (equity) and essentially use it as cash. Since home equity is not liquid cash, its meaning and value can be a bit confusing. As Bankrate explained in an article on the subject, home equity is the difference between the value of your home and the amount you still owe  on your mortgage. Some may use the phrase "second mortgage" as a general term for two specific types of home equity lending products.

Loans and lines of credit

The most basic type of second mortgage is a home equity loan. With this type of loan, homeowners are able to borrow a one-time lump sum of cash based on the home's existing equity. They then pay down this amount over time, usually over at least 15 years , according to U.S. News & World Report. During this time, the interest rate usually does not change.

"Home equity loans let borrowers tap into the money they've already invested in their mortgage."

The other type of second mortgage is known as a home equity line of credit (HELOC). This product functions more similarly to a credit card since it allows the borrower to carry a revolving balance. As Bankrate explained, HELOCs are broken up into two periods. In the first, the borrower withdraws an amount being loaned by a bank. The homeowner must pay back the principal of the loan in the second period. During the withdrawal period, the homeowner can use as much of that available credit as they need and only pay the interest on the debt. This is typically the process in the first five to 10 years of the loan period. During the repayment period, borrowers are not able to take on any more debt and must begin paying back the principal plus interest. This period is usually 10 to 15 years long. Interest rates may be subject to change for HELOCs.

Putting equity to use

Once you've been approved for a home equity loan or line of credit, you can get to work checking off that to-do list. Many homeowners prefer to prioritize projects that will provide the biggest returns on their investment. This is wise not only when it may come time to sell several years down the road, but also considering that these improvements will make living in the home much better for you and your family.

If you have enough credit available from the equity in your home, you may be prepared to spend big. According to a report from House Logic, the kitchen is one of the most popular yet pricey priorities  for home remodeling. The median cost of a kitchen overhaul - including new equipment, furniture and accessories - runs around $30,000. This is no small sum for any homeowner, but it's within reason, considering the average owner could recover more than two-thirds of that cost once the home is sold.

Not willing to splurge on new kitchen digs? As Credit.com noted, there are countless other options  for homeowners looking to improve their pad on the cheap. Consider a project that's affordable yet practical, like:

• Painting - Whether done professionally or on your own, a fresh coat of paint is still one of the best uses of home improvement dollars.
• Lighting - Updated lighting fixtures are worth more than a calmer ambience; they can also help cut down on energy expenses after switching to LED or florescent bulbs.
• Appliances - Instead of ripping up the entire kitchen, why not settle for a new oven, range or fridge?

No matter how you end up spending your home equity loan, be sure to take time and put in the extra legwork to find the best deals and save even more.

Talk to your local Vectra Bank professionals for more information about home equity loans and lines of credit today! Please call our TeleLoan line at 1–888–294–7838 or visit one of our personal bankers at a branch near you.