A HELOC generally doesn't require as much
paperwork as a full refinance or a second mortgage.
If you already have a relationship with the bank offering
the line of credit, the bank may waive any fees associated
with opening it.
Another potential benefit comes on April
15. In most cases, you can take a tax deduction on the
interest you've paid.
Finally, a HELOC may be a good option
if you're considering doing your remodeling in stages.
"You only pay interest on the amounts you borrow
on the HELOC," says Coffin. "If you don't
use the line of credit, you don't have any monthly payments
to make." You can also use it again and again,
borrowing money, paying it off and borrowing again.
may have lower interest rates than credit cards and
offer tax benefits.
is required in order to sign up; variable rates can
Home equity loan
A home equity loan is a second mortgage -- it offers
a fixed rate, just like a traditional 30-year mortgage.
Because it's a slightly riskier proposition for a bank,
the rate you'll be offered is typically higher than
it would be for a first mortgage or refinance.
On the other hand, there usually isn't
nearly the amount of paperwork involved as there is
for a full refinance.
"There's a lot less documentation
for a second mortgage," says Lance Melber, president
One Home Loans. "Often, homeowners can get
approved the same day, and an appraisal can (frequently)
be done online." Like a refinance and a home equity
line of credit, you may be able to take a tax deduction
on the interest.
A home equity loan also may be appropriate
if you want a fixed rate but have a great interest rate
on the first mortgage. With this type of loan, you can
continue to pay off your first mortgage at the low rate
and just tack on a second payment.
Another benefit -- but occasionally a
drawback -- is the opportunity to borrow more than the
value of your home. If you plan to stay in your home
for several years after you borrow the money, or expect
that the improvements will significantly increase the
value of your home before you sell it, this can work
in your favor. However, sell too quickly afterward on
an improvement that doesn't have a great return on investment,
and you could end up owing more than your house is worth.
home equity loan is less complicated than a full refinance,
less expensive than a line of credit and can offer
Cons: These loans tend
to have a higher interest rates than full refinances;
you could end up owing more on your house than it's