Home Remodeling Plans - Loan or line of credit, which is right for you?

As a homeowner, you're in an ideal position to use the growing equity in your home to finance home improvement projects. Whether you choose a home equity loan or line may depend on one of these factors:

  • If you need money for a large home improvement or renovation project, a home equity loan allows you to pay off a larger loan over a longer term. Your loan is secured by a mortgage or deed of trust in second position on the title of your home. This type of loan is paid to you as one lump sum.
  • If you intend to borrow relatively small, variable amounts and pay back the principal quickly, a home equity line of credit can cost less than a home equity loan. It can offer you the ability to draw money for making improvements only as you need it.

Home improvements can help increase the value of your home. A Chase Home Equity Line of Credit or Chase Home Equity Loan can give you the flexibility to make the improvements you need-without tapping into cash you may want to set aside for other purposes.

Here are more tips to consider when you plan to improve your home:

  • Unless you use a home equity loan to refinance your existing first mortgage loan, the terms of your first mortgage loan will not change when you take out a home equity loan. Typical loan terms range from five to 30 years. Any existing home equity accounts, also known as second mortgage loans, must be paid off with the new home equity loan.
  • If you make home improvements with the specific intent of increasing the resale value of your property (as opposed to just making it more comfortable to live in), make sure the renovation will add the value you want. For example, a kitchen renovation might recover the money spent and more, whereas adding a pool might not. Your local real estate agent may be able to provide valuable insights about the improvements that most interest the buyers in your area.
  • Before deciding on a final loan amount, complete a cost breakdown that itemizes the estimated cost of your home improvement. Include the items you will need, such as building materials (lumber, concrete, etc.), labor and decorating (paint, tile, etc.), as well as a contingency amount for possible unplanned expenses.
  • A home equity account can provide a tax-deductible way to improve your home and increase its value. Note, however, that you should always consult a tax advisor about the deductibility of interest. There are typically no restrictions for home improvement, as long as it is within the boundaries of local building requirements. You have the choice of doing the improvement work yourself, or using a contractor.

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