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What to Consider Before Using Your Home’s Equity for Home Improvements

March 23, 2017

Buying a house is likely one of the greatest investments you will make in your lifetime. Not only do you invest your hard-earned money, you also invest your valuable time and energy into a space to call your own. One of the advantages of owning a home is that it will likely increase in overall value. When the time comes that you’ve built up some equity and need to make some necessary improvements or want to make aesthetic updates, you can make your home work for you. A home equity loan or line of credit (HELOC) may be just the ticket. Learning how this type of financing works, however, is an important first step.

Benefits of a home equity loan or line of credit:

  1. Interest rates are typically lower than credit card interest rates.
  2. Interest paid on a home equity loan can be tax deductible.


  1. Your house is used as collateral and can be repossessed by the bank if you neglect payments.
  2. Although using a home equity loan for home improvements can be beneficial, spending money on the wrong type of investments may not increase your home’s value in the long run.
  3. If your spending and borrowing habits are bringing you significantly deeper into debt, a home equity loan may be a burden to your overall financial well-being.

Home improvement is the most common reason why home owners consider using their home’s equity, but it’s not the only reason. Close seconds on the list are major purchases such as cars and appliances, or financing education. A HELOC or home equity loan is a helpful alternative to keeping a large sum of money in a low-rate bank account for emergency savings.

The opportunity to borrow from your home’s equity is especially attractive if your home has risen in value, providing you with a larger equity cushion. If you decide that utilizing your home’s equity is the right move, explore which lending option best fits your unique needs. The two most common options are a fixed-rate home equity loan or home equity line of credit. A fixed-rate home equity loan acts as a second mortgage. A single lump-sum is given to the borrower and is repaid over a five to fifteen-year period. As the name suggests, the payment and interest amounts are locked from the start and the total amount borrowed must be repaid in full. A home equity line of credit or HELOC, is a variable-rate loan. Once a borrower is pre-approved for an amount, they are able to access the funds on an as-needed basis. The payments vary depending on the amount borrowed and the current interest rate.

Whatever you need, your home's equity can be a valuable asset that can benefit you and your finances.  In any financial situation, it is imperative to take the time to talk to a qualified lender at your financial institution to conduct the necessary research and help you make a decision.

Jim Oosterman is the Vice President of Melrose Bank. He can be reached by telephone at 781-665-2500, online at or on Facebook at

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