Home Equity for the Holidays: Using a HELOC for Renovations

With borrowing rates at their lowest in years, now is the perfect time to consider a Home Equity Line of Credit (HELOC) to finance your home improvement projects. Whether you're preparing your home for holiday gatherings or tackling upgrades before the cold sets in, a HELOC allows you to take advantage of reduced interest rates—with the potential for even more rate cuts on the horizon. 

How does a HELOC work?

A HELOC is a revolving credit line that allows homeowners to borrow against the equity in their homes up to a certain amount. The lender establishes a credit limit based on a percentage of your home's current market value minus the outstanding mortgage balance.  

Just like other borrowing products, like credit cards, you have to get approved for a HELOC. Lenders will look at your credit score, income, and debt-to-income (DTI) ratio to determine your eligibility. The latter measures the percentage of your monthly income that goes toward paying off debt. For this reason, student loans are considered when applying for a HELOC. This debt can significantly affect your DTI by increasing your overall debt burden. 

• Want to calculate your home equity? It’s easy with an online home equity calculator!

HELOCs have two distinct periods. First is the draw period, which typically lasts around 10 years. During this time, you can access funds as needed up to your credit limit. You can make interest-only payments until the draw period ends, but you also have the flexibility to start chipping away at the principal amount if you choose to do so.  

As you repay the borrowed amount, the credit line becomes available for future use. For example, say you have a credit line of $50,000 and spend the full amount between a kitchen and bathroom renovation. If you repay the $50,000 during the draw period, you can borrow it again. When the repayment period begins, you can’t continue borrowing funds and must fully repay the outstanding balance, which includes both principal and interest. Develop a repayment strategy so you’re not caught off guard when this switch occurs. 

Why are HELOCs ideal for holiday renovations?

1. Lower interest rates

HELOCs typically offer lower interest rates compared to unsecured personal loans or credit cards. This can translate into substantial savings over the life of the HELOC, making it a cost-effective way to fund your renovation projects.  

2. Improved holiday experience

With renovations completed before the holidays, you can create a more inviting and comfortable environment for your guests and loved ones. Whether it's a renovated living room for holiday gatherings or a new dining area for festive feasts, these improvements can enhance the holiday experience for both you and your guests. 

3. Tax benefits

In many cases, the interest paid on a HELOC may be tax-deductible, especially when the funds are used for home improvements. This tax advantage can significantly reduce the overall cost of financing these improvements, providing additional value. 

4. Flexible repayment terms

HELOCs offer flexible repayment terms, allowing you to choose between interest-only payments or paying down the principal balance as aggressively as you prefer. Tailor your repayment schedule to your financial situation, accommodating changes in your income or expenses during and after the holiday season.

5. Increased home value

Renovations completed before the holidays can enhance the overall value of your home. Upgraded features make your home more attractive to potential buyers or increase its overall value for future refinancing or selling opportunities. This long-term value can offset the cost of the HELOC. 

What are the best holiday home improvements? 

When it comes to home updates, there are many opportunities to increase the value of your home. Consider: 

• Energy-efficient upgrades. Not only will energy-efficient upgrades potentially lower your utility bills, but you can claim a federal tax credit for qualified expenses. Install a new water heater, replace your windows with energy-efficient ones, and more.  
• Kitchen remodel. Completing a minor kitchen remodel can not only make your space more functional and visually appealing, but you could potentially recoup over 85% of the cost.¹  
• Bathroom remodel. A sleek, new shower or modern flooring can make your bathroom a place of refuge. Plus, your return on investment could be up to 70%.¹

A HELOC can be a valuable financial resource for tackling renovations before the holidays, offering easy access to funds, lower interest rates, and potential tax benefits. By using one responsibly, you can enhance your home, increase its value, and create a more enjoyable holiday season without jeopardizing your financial stability. At  General Electric Credit Union (GECU), our HELOCs have no annual or application fees and no prepayment penalties.² Learn more then apply online to take advantage of today’s lower HELOC rates.