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How to Use Home Equity for Renovations

2/19/2025

With rising home prices and mortgage rates, many homeowners are choosing to renovate their homes instead of moving. And while improving your current home may be more affordable than purchasing a new one, it will still cost you. But if you’ve paid a significant portion of your mortgage, paying for that remodel may be easier than you think.

By taking out a home equity loan or home equity line of credit (HELOC), you can borrow money against your home’s worth for a smart financing solution. Keep reading to learn more about home equity and why it’s a beneficial way to pay for home renovations.

Understanding Home Equity

Home equity is the difference between the current market value of your home and the amount you still owe on your mortgage. Essentially, it’s the portion of your home that you actually own. Equity increases over time as you pay off your mortgage and if your property value appreciates.
There are two ways to tap into your home equity in order to borrow funds: a home equity loan and a home equity line of credit (HELOC). Both methods require you to put your home up as collateral but generally offer lower interest rates than credit card or personal loan rates.

Home Equity Loan vs. HELOC

A home equity loan is similar to a mortgage. It’s a lump-sum loan with a fixed interest rate and repayment term. This means that you receive access to the entire loan immediately, but repayments also start right away. Repayment terms can range from five to 30 years.

Due to its straightforward nature, a home equity loan is useful for financing simple, fixed-cost, or relatively short-term projects, such as remodeling a kitchen or bathroom.

A HELOC is a revolving line of credit, similar to a credit card. It has a variable interest rate and allows you to borrow money against a credit limit as needed. Every HELOC has a draw period, typically between five and 15 years, during which you can access the funds. You’ll need to make some payments during this phase, but most borrowers make small, interest-only payments. After the draw period ends, you can no longer access the line of credit. The repayment period then begins, during which you’ll pay back the debt you accumulated in monthly installments.

Because you can borrow money as you need it over an extended period of time, a HELOC can be a smart way to finance ongoing projects or projects for which you are unsure of the cost, such as whole-home renovations.

Benefits of Using Home Equity for Home Renovations

Lower Interest Rates: Home equity loans and lines of credit are secure loans because they are backed by your home as collateral. This allows them to offer lower interest rates than credit cards and personal loans.
Tax Advantages: If you use home equity funds to pay for improvements to the home securing the loan, you can then deduct the interest you pay on the loan annually on your tax return.
Building Value: Using home equity to pay for home renovations can increase your property’s value, helping it appreciate and making it easier to sell if you choose to do so.

Apply Today with SharePoint Credit Union

Tapping your home equity to fund home renovations can be a smart financial move for several reasons. With relatively low interest rates, the opportunity to make tax deductions, and the possibility of increasing property value, home equity can make remodeling much more affordable than moving.

And at SharePoint Credit Union, we offer home equity loans and lines of credit with competitive rates and flexible terms. We prioritize offering the best services to our members, and we’re happy to discuss how home equity could help you achieve your home renovation goals.

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