If you’re ready to renovate the room you’ve always talked about updating or feel like your house could use a little sprucing up, you may be considering different options to pay for it. A Home Equity Loan (HELOAN) or Home Equity Line of Credit (HELOC) may be a good option to consider when it comes to financing your next home project.
There are many reasons to choose a HELOC or HELOAN to renovate your home. At Lakeland, our low rates are just one of the reasons to tap into the equity you have to give your home the love it deserves. First, let’s cover the basics:
What is a HELOC and HELOAN and how do they work?
Over time, when you make payments to your mortgage and pay down the principal balance, you build equity. A HELOC is a variable rate line of credit secured by your home, meaning you are borrowing against the available equity in your home. That equity can provide you with an option for low-cost funds in the form of a credit line. Your house is used as collateral for the line of credit.
In many cases, HELOC rates are lower than other types of personal loans—though the rates may depend on your credit score and the equity in your home. Interest rates can be fixed or variable. Typically, you will have a set amount of time, for example 10 years, during which you can use the available credit. Then, there is a repayment period where funds are no longer available to borrow and payments shift from interest-only to interest plus principal payments. It is crucial to understand the repayment costs to know if a HELOC is a good option for you.
A HELOAN is a fixed interest rate loan, also secured by your home. Typically, you will have a fixed interest rate for a specific term, a fixed monthly payment amount and a repayment period of five to 20 years.
Home Equity Line of CreditVariable rate line of credit, secured by your home, with the option to borrow only what you need, when you need it, up to your credit limit |
Home Equity LoanA fixed interest rate loan, secured by your home, to finance a specific amount for a definite period of time | |
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Accessing Your Funds | Simply access funds as needed through Online or Mobile Banking or HELOC checks | Receive your funds in one lump sum |
Payments | Flexible monthly payments during the 10 year draw period; choose between interest only or principal + interest payments | Predictable fixed monthly payments of principal + interest for the life of the loan |
Features & Benefits |
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Benefits of using a HELOC or HELOAN
There are a number of reasons a HELOC or HELOAN could be a great solution to extending your home renovation budget.
1. Low interest rates: The low interest rate is a major draw—and typically nowhere near the rate of a credit card.
2. May be tax deductible: Your HELOC may be used to lower your taxable income, but consult your tax advisor to review your own situation and whether your HELOC is tax deductible.
3. Can be used for many purposes: You can use a HELOC or HELOAN for whatever you choose including renovations, additions to expand your home or even debt consolidation. It is usually best to reserve the funds for long-term expenses.
4. Easy access to funds: Lakeland Bank offers easy access using online or mobile banking or HELOC checks. You will be able to use funds from this loan or line of credit as needed until the repayment period starts.
5. Flexibility to borrow and repay: Having a long draw period allows flexibility to borrow money as needed. You can repay funds during this time so that your available credit is replenished and you only pay interest on the balance you borrow. Once the draw period ends, you have to pay the balance with interest before the repayment period ends.
6. Advantage Program: Lakeland Bank offers a Home Equity Advantage Program. Borrowers applying for a home equity loan who meet income limitation and property location requirements may be eligible for rate discounts.*
Is a HELOC or HELOAN right for you?
Use our calculator to estimate your borrowing capacity using home equity and ask yourself these key questions if you are considering a HELOC or HELOAN:
Can you make the payments?
Rather than looking at the cost of the interest-only payments due during the HELOC draw period, you need to know what the maximum repayment cost would be if you used the entire loan amount. It’s very important to be realistic about what costs fit into your budget.
Does your renovation improve the value of your home?
Taking out a second mortgage is best suited for improvements that will increase the value of your home. One way to recoup the costs is to use it to pay for something that grows in value, like a remodeling project with a high ROI.
Are your home improvements too expensive to pay off just yet?
In some cases, either a HELOC or HELOAN is a good solution if you need a repair or remodel job done right away. For example, the roof is leaking and you need to get a roof replacement. Or, maybe your water heater just went and it’s an expense you weren’t prepared for. In these cases, a loan or line of credit can be ideal for bridging the gap instead of tapping out your savings or using a high interest-rate credit card.
If you’re considering a HELOC or HELOAN, explore our low-rate options and apply now. Not quite ready to apply? Get started by downloading a HELOC or HELOAN application today and speak with one of our experienced and knowledgeable lenders who are here to guide you through the process at 866-224-1379.
*Eligibility will be determined based on your verified total annual household income and property location when you submit a Home Equity Loan application. Eligible properties must be located within Lakeland Bank’s CRA Assessment Area which includes various counties in New Jersey and New York. For income limits and each covered county, visit the Rates page.
