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With just weeks left until spring, many homeowners may be preparing for major projects, repairs and renovations now. Whether it’s installing a new pool, adding another bathroom or replacing a roof, the time to get spring projects in order is now.
While many factors will go into the process, the most important is how to fund these projects properly. Fortunately, many homeowners have an easy-to-access form of cash at their disposal right now — their home equity. The average homeowner had around $200,000 worth of home equity they could use in 2023.
While there are always other credit options available, there are some compelling reasons why homeowners should utilize their home equity instead. Below, we’ll break down three great reasons why you should use your home equity this spring.
Ready to get started? See what home equity loan interest rate you could qualify for here now.
3 great reasons to use your home equity this spring
Here are three reasons why you should consider funding your new projects with your home equity.
It’s cheaper than the alternatives
Have you checked out interest rates on credit cards lately? Many hover around 20%, making them an inefficient way to finance major projects and renovations. Personal loans, on the other hand, generally cost less but are still often found in the double-digit realm, regardless of your credit profile.
Home equity loans and home equity lines of credit (HELOCs), meantime, are secured by your home, thus allowing lenders to offer lower rates than they would for other products. Either option averages under 10% right now— and they could fall further as the 2024 rate climate evolves.
So if you’re looking for a large sum of money but don’t want to get stuck with a massive interest rate, borrowing from your home equity may be the best way to proceed.
Check your home equity loan options here today.
You can boost your home value
Not every home project will boost your home value but many will. Projects like kitchen remodeling, hardwood floor refinishing, bathroom improvements and energy-efficient renovations have all been proven to increase the value of your home, regardless of the state of your local market.
And when you boost your home value, you’ll create more home equity to use for other projects and goals, making it a rare financial win-win.
The interest may be tax-deductible
If you apply for and use a home equity loan or HELOC today, make sure to keep your documentation in order. That’s because interest paid on the loan in 2024 may qualify to be deducted from your taxes when you file them in 2025. The funds will need to be used for IRS-approved reasons, but if you’re planning on channeling the money to the aforementioned projects, you’ll likely qualify.
“Interest on home equity loans and lines of credit are deductible only if the borrowed funds are used to buy, build, or substantially improve the taxpayer’s home that secures the loan,” the IRS explains online. “The loan must be secured by the taxpayer’s main home or second home (qualified residence), and meet other requirements.”
The bottom line
There’s no shortage of funding options for homeowners, but only one that offers a combination of low rates, the potential for a rise in home value and tax benefits. Just be sure to do your research before getting started as home equity loans and HELOCs operate differently, each coming with its own set of pros and cons. By understanding both options you’ll better be able to successfully navigate the financing portion of your spring projects and improvements.
Matt Richardson is the managing editor for the Managing Your Money section for CBSNews.com. He writes and edits content about personal finance ranging from savings to investing to insurance.
