Do you have a mortgage loan you've been paying for a while? If yes, you have probably created a good amount of equity in your home. Equity refers to the difference between your outstanding mortgage balance and the current value of your home. For example, if your home is currently valued at $400,000 and you owe $300,000 on your mortgage, then you have $100,000 in equity. You can channel your home equity to finance home renovations. This means using your home's value to give it more value that would yield more equity. A home equity line of credit (HELOC) is one of the best ways to borrow money against your equity. Please read on to learn more about HELOC and home equity loan rates in Maryland.
What Is a HELOC?
A HELOC is a revolving line of credit secured by your home equity. It is typically used for home renovations or repairs. A HELOC allows you as the homeowner to access credit up to a predetermined limit based on your home's equity and creditworthiness, usually determined by your credit score, debt-to-income ratio, loan-to-value ratio, and income.
A HELOC loan differs from a conventional loan as it allows you to withdraw the funds as needed during the draw period (usually up to 10 years). After that, you'll have a specified period, known as a repayment period (usually up to 20 years), to pay back what you've borrowed.
The Difference Between a HELOC and a Home Equity Loan
Home equity loans and HELOCs use your home's equity as collateral, but they work differently. A home equity loan is similar to a conventional loan; you receive a lump sum upfront and pay it back over time with fixed monthly payments.
A HELOC is a revolving line of credit in which you decide if and when to withdraw the money. A HELOC also lets you decide on interest-only payments until the end of the draw period. Unlike a home equity loan, you must begin paying principal and interest immediately.
Benefits of Using a HELOC for Home Renovations
HELOC allows you to use your home equity as capital to enhance your home's aesthetics, functionality, or energy efficiency. This can help you realize a higher resale value and offset the cost of the renovations. HELOCs are favored by many homeowners for financing home renovations due for the following reasons:
Interest-Only Payments
During the draw period, most HELOCs only require you to make interest-only payments. This means you're only responsible for the interest accrued on the amount withdrawn without paying back the principal amount, as with conventional loans. This flexibility can be a relief during the renovation period when cash flow may be tight. However, homeowners should beware that after the draw period, they must make full payments, including principal and interest on the remaining balance.
Longer Repayment Period
HELOCs have a longer repayment period compared to traditional home equity loans and the longest draw period among all home loans. The two can extend up to 30 years, allowing you to spread payments. As a result, you're left with enough funds for other projects and to meet your monthly expenses.
Tax Benefits
The interest paid on a HELOC loan throughout a financial year may be deductible from the federal income tax during reporting. This means homeowners may be able to save on a renovation project. However, there are exceptions according to the Tax Cuts and Jobs Act of 2017. Consult your tax advisor to understand if the tax deductions apply to your situation.
Low Interest Rates
Despite being a line of credit, HELOCs have relatively lower interest rates than personal loans and credit cards. This is because they are secured by your home, which makes them low risk to lenders. As such, they are a better option than home equity and conventional loans.
Flexible Access to Funds
With a HELOC, you can access the funds when the need arises. This may prevent you from using the money on other expenses, ensuring you have enough for the renovation.
Partner With Woodsboro Bank for the Best Home Equity Loan Rates in Maryland
If you own a home and want to use your equity to cover your home renovations in Maryland, Woodsboro Bank has you covered. As a community bank, Woodsboro is committed to helping the local community grow by offering competitive rates and personalized services. Contact Woodsboro Bank today to enjoy the best home equity loan rates in Maryland and start your home renovation project.