Is Using a HELOC the Smart Choice for Your Home Renovation?

Jan 6

What better way to launch into 2025 than with that home renovation project you’ve always wanted? For those who aren’t interested in funding their remodels with cash, a Home Equity Line of Credit (HELOC) is among the most popular alternatives. We’ve been renovating homes across Sacramento county for over two decades now, so we’re no strangers to this financing option. You may have already heard from lenders about their take on them, but we thought our perspective could be another helpful one to consider. We understand that a kitchen remodel, bathroom upgrade, or even a complete home makeover can all carry hefty price tags. So what are the best options for you as the homeowner?

Well, here’s our take on what you need to know about HELOCs and how they can help make your home improvement project a reality.

HEX General Contractor siding expert cutting custom cream colored James Hardie siding for a Sacramento home installation.

What Is a HELOC?

A Home Equity Line of Credit is exactly what it sounds like; a loan that opens a line of credit from your home’s equity. Your home equity is the difference between what your home is worth and what you still owe on your mortgage. In other words, your equity is what you’ve already paid off on your home. With a HELOC, you can take out that money as needed, up to a set limit, and only pay interest on what you use.

HELOCs usually have lower interest rates than credit cards or personal loans because they’re backed by your home. They’re also super flexible by allowing you to access funds when you need them while leaving the rest untouched, which makes them a great option for home improvement projects.

Benefits of Using a HELOC for Home Renovations

1. On-Demand Funds

Remodeling projects can involve unexpected costs, like surprise repairs or last-minute design changes. A HELOC lets you take out money when you need it instead of getting a big loan all at once. This way, you only borrow and pay interest on the money you actually use.

2. Lower Interest Rates

HELOCs usually boast a lower interest rate compared to personal loans or credit cards. According to the Consumer Financial Protection Bureau, the average credit card interest rate in 2023 was 22.8%, while the current average HELOC rate is at just 8.36%. HELOCs are a cost-effective option for financing large-scale renovations.

3. Potential Tax Benefits

If the funds from your HELOC are used specifically for home improvements, the interest paid on the loan could be tax-deductible. According to the IRS, deductions are allowed if the renovations significantly add to the value of your home or prolong its useful life. Consult a tax professional to ensure your project qualifies.

4. Increase Your Home’s Value

Using a HELOC for renovations is a smart way to increase your home's value. Projects like kitchen remodels, bathroom overhauls, or exterior upgrades to your siding or windows provide the highest ROI. Home renovations in the Sacramento area provide a particularly high ROI in comparison to the rest of the nation due to our competitive housing market.

5. Customizable Repayment Options

The flexibility of a HELOC applies not only to the borrowing phase, but also in repayment. Most HELOCs come with an initial draw period (typically 5–10 years) during which you can borrow money and only pay interest. After the draw period ends, you’ll enter the repayment phase, during which you’ll pay back the principal plus interest. This staggered approach can make budgeting for your project more manageable.

6. No Need to Refinance

Unlike a cash-out refinance, which requires replacing your existing mortgage with a new one, a HELOC lets you keep your current mortgage terms intact. This is especially beneficial if your mortgage has a low interest rate that you’d like to preserve.

Things to Consider Before Using a HELOC

While a HELOC offers many advantages, it’s important to carefully consider the risks and requirements before proceeding:

Variable Interest Rates: Most HELOCs have variable rates, meaning your interest payments could potentially increase over time.
Using Your Home as Collateral: Failure to repay a HELOC could put your home at risk, so it’s essential to borrow responsibly.
Application and Fees: HELOCs may require an appraisal, application fees, and closing costs, so make sure to factor these expenses into your decision.

HEX Can Make the Most of Your HELOC

If you’re planning to use a HELOC for your renovation, hiring the right contractor is key to getting the most out of your investment. HEX General Contractors specializes in high-quality renovations that fit your goals and budget. Whether it’s a kitchen makeover or energy-saving upgrades, our team has decades of experience renovating homes with craftsman detail across Sacramento and the Bay Area. A HELOC can help you unlock your home’s potential with flexibility, affordability, and lasting value, but we always advise that you speak with a finance professional first.