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Using a home equity loan for home improvements.

Using a home equity loan for home improvementsCharlene and Russell are considering borrowing from their home equity to make home improvements. They plan on doing most of the work themselves and they have several jobs in mind including remodeling the kitchen, knocking down walls and adding a back room. They have a rough estimate of costs and they plan on doing the work over the next year. What type of home equity loan is right for them?

Analysis: Charlene and Russell's situation points to a home equity line of credit being the best option for them. Since they are doing the work over the next year, they will need to spend money on supplies and tools at intervals. A home equity line of credit is ideal for this situation since it allows you to access money at intervals - you benefit by using the money only when it is needed and therefore avoid paying interest until that time.

A home equity line of credit works a lot like other lines of credit - you have a limit or a maximum amount that you can borrow against as you need it. The line of credit also works well for Charlene and Russell since they do not know exactly how much they will need. When they have an estimate of how much they will need, they should probably 'pad' or add a little extra money to the loan amount for safety. When they have received their line of credit, if they decide not to do certain parts of their renovations or if they over-estimated, they do not have to borrow that amount from their credit line.

More Related Information On...
home equity lines of credit - see Home Equity Lines of Credit, Types of home equity loans
choosing a type of home equity loan - see Which home equity loan type is right for me?, Types of home equity loans

Case Studies:

  • Using home equity for debt consolidation: Tony wants to use the equity he has in his home for debt consolidation but he is unclear about the advantages and disadvantages of doing this. If borrowing from his equity is suitable for his situation, what type of loan should he get?
  • Should you use the equity in your home to buy a car? Christine wants a new car but she has no savings. Should she use a home equity loan to buy a new car?
  • Cash-out refinancing? John wants to borrow from the equity he has in his home but he is not sure if he should get a home equity loan or cash-out refinance?
  • Ramifications of accepting a loan offer. Milton is thinking of accepting a home equity loan loan offer. How will this affect future selling, future home equity borrowing and what will be the tax implications?

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