Can You Use a HELOC for Home Improvements?
A kitchen remodel. A new roof. An addition. Updating an older home.
When you're planning a significant home project, figuring out how to pay for it can become almost as important as deciding what you're going to build.
For homeowners who have accumulated equity, a home equity line of credit may be one option worth considering.
Why Use a HELOC for Renovations?
Renovations often don't happen in one transaction.
You might pay a contractor's deposit this month, purchase appliances later and have another large expense when cabinetry or flooring is installed.
A HELOC's revolving structure can be useful in situations like these because you can generally access available funds during the draw period rather than necessarily taking the entire amount at once.
What Types of Projects Can a HELOC Cover?
Depending on your HELOC terms, homeowners may consider using available funds for projects such as:
Kitchen renovations
Bathroom remodels
Home additions
Roof replacement
HVAC or major systems
Outdoor living projects
Structural repairs
Updating an older home
Other major improvements
Of course, having equity available doesn't automatically mean every project is worth borrowing for. You should consider the project's cost, your available cash, the HELOC's terms and your ability to repay the balance.
What If I Already Have a Low Mortgage Rate?
This is another reason HELOCs can be attractive.
A HELOC generally does not require you to replace your existing first mortgage.
If you like your current mortgage terms but need additional funds for a renovation, you can compare a HELOC against alternatives without automatically refinancing the entire first-mortgage balance.
Is HELOC Interest Tax Deductible for Home Improvements?
Possibly—but this is an area where you should talk with a qualified tax professional about your specific circumstances.
The IRS states that interest on a home equity loan or HELOC may qualify as deductible home mortgage interest when the borrowed funds are used to buy, build or substantially improve the home securing the loan, subject to applicable requirements and limitations. Conversely, using HELOC proceeds for personal expenses such as paying credit-card debt does not make that interest deductible under the same rule.
In other words, don't assume HELOC interest is deductible simply because the loan is secured by your house.
HELOC vs. Cash for a Renovation
There's no universal answer.
Paying cash means avoiding additional debt and interest. A HELOC may allow you to preserve cash reserves while spreading project expenses over time, but it also means borrowing against your home and taking on an additional payment.
That's a financial decision worth looking at in the context of your entire situation.
Planning a Renovation in Tennessee?
Before you start moving walls, it can help to understand your financing options.
AP Lending can help qualified Tennessee homeowners explore available HELOC options while keeping their existing first mortgage in place.
Planning a project? Explore AP Lending's HELOC options or contact Austin to talk through your goals.