« Return to "Blog"

How to Use a Home Equity Line of Credit for Home Improvements

Using a home equity line of credit for home improvements can be a smart financial move. Whether it’s expanding your space, modernizing systems, or adding amenities, you can upgrade your quality of life while also increasing your home’s worth. When inspiration strikes, a HELOC has your back.

What is a Home Equity Line of Credit?

Unlike a traditional loan, a Home Equity Line of Credit (HELOC) gives you access to funds as you need them—similar to a credit card. A HELOC allows you to borrow against the equity you’ve built in your home, which is the difference between your home’s worth and what you owe on your mortgage. You can draw, repay, and draw again during your “draw period,” making it ideal for ongoing or phased projects.

How can I use a Home Equity Line of Credit for home improvements?

Whether it’s for a bathroom remodel, kitchen renovation, or home addition, a HELOC can finance major home improvement projects with lower interest rates than a personal loan or credit card.

Before taking out a Home Equity Line of Credit for home improvements, consider how much value the project will add to your home. This includes upgrades that add physical square footage, such as an additional bathroom, home office, or finished basement. This could also include upgrades that add curb appeal or enhance outdoor living, such as a parking space, deck, fireplace, or pool.

How does using a Home Equity Line of Credit for home improvements work?

The amount you can borrow is based on how much home equity you have. When using a home equity line of credit for home improvements, there are two distinct periods: a draw period and a repayment period. For example, at MIT Federal Credit Union, 5- and 10-year draw periods are available, with repayment periods of up to 10 years.

During the draw period, the minimum monthly payment is interest-only. The minimum payment will not reduce the balance of your loan. Any amount paid above the minimum payment will reduce the balance. Use this calculator to estimate your borrowing capacity for a HELOC.

Why use a Home Equity Line of Credit for home improvements?

In contrast to a home equity loan, which provides the borrower with a lump sum, a HELOC allows the borrower to draw as needed. This means you’ll have the flexibility to borrow as little or as much as needed for your home improvement project. This also means that you’ll avoid overborrowing. Adding a HELOC to your payment history and paying it on time can also help boost your credit score.

When using a Home Equity Line of Credit for home improvements, keep in mind that interest rates for HELOCs are variable, meaning that they will fluctuate. If your project drags on as interest rates climb, repayments could get expensive. Additionally, since you won’t have to start paying the principal until after the draw period, it can be easy to accumulate a big sum of debt.

How do I get started?

Making an informed decision is key. Before applying for a Home Equity Line of Credit for home improvements, it’s important to budget how much you can afford to borrow and how long it will take to repay. Oftentimes, home improvements cost more and take longer than initially expected.

At the same time, home improvements will likely add value to your home, which will pay off in the long run. In the meantime, you can use your home equity to enjoy your home even more.

At MIT Federal Credit Union, our team is here to guide you every step of the way. With competitive rates and flexible repayment terms, you can repay what you borrow at a pace that works for you.

« Return to "Blog"