Get Out of Debt Guy

Should We Get a Home Equity Loan for Improvements? - Pam

Posted April 4, 2013

WRAL Reader Question

Dear Steve,

We are a middle class couple wanting to do some home improvements.

We built our house in 1996 & paid it off 2 years ago. We need to do some home improvements, i.e., new countertops, painting, ceiling work, new flooring, etc. I est the cost to be under 15,000. Should I use a home euqity line to do this?



Dear Pam,

I'd love to give you a definitive answer but the reality is, it depends.

If your bank is offering you a low fixed rate home equity line of credit (HELOC) for no fees then it is worth strongly considering. Keep your eyes open though and make sure there are no hidden fees, such as an annual fee for the loan.

For those that might not be familiar with a HELOC, it is a revolving line of credit that is secured by your home and the interest rate charged may be variable. If interest rats go up then the amount you pay in interest will rise as well.

The interest you pay on the HELOC is typically tax deductible. Talk to your tax adviser for details.

While the interest rates on these equity lines of credit are typically lower than an unsecured loan, they are lower for a reason. The HELOC is less risky for the lender than an unsecured loan because the loan is secured by your home as collateral. If you fail to pay they will foreclose. So while the rate is lower, there is some risk if you were unable to pay it back.

So the depends part of this puzzle has to do with the payment affordability component. If the HELOC payments will fit into your monthly budget without a problem and you can repay the loan quickly then it's sure something to consider.

Steve Rhode

WRAL Get Out of Debt Guy

If you have a credit or debt question you'd like to ask just use the online form. I'm happy to help you totally for free.

1 Comment

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  • common tater Apr 7, 2013

    You already managed to "Get Out of Debt" stay that way. Take the monthly amount you were paying into your mortgage and put it into a savings account, then pay cash for the upgrades/repairs in 18 months or so.

About this Blog:

Steve Rhode has had careers in opthalmology, real estate and as the head of a nonprofit debt counseling firm. On his blog, he offers hard-won, free advice about getting out of debt, consolidation and making the right choices as you manage your money.