Using Home Equity for Home Improvement

You can use all, or part of your home equity loan for remodeling or home improvement. Lenders usually do not place restrictions on the projects to be done. Depending on the extent of your project, you typically have the choice of doing the improvement work yourself, or using a contractor.

Using a home equity loan for home improvement provides a fully amortized, fixed rate installment loan, or a credit line offers the flexibility of drawing money as needed. Placed in second position on the property title, there is no change in the terms or the payment of your existing first mortgage. The disbursement checks can be made payable to you, or to you and your contractor.

You typically have a choice of loan terms from 5 to 20 years. If you currently have an equity loan or an equity credit line, it must be paid off with the new loan, so be sure to include the amount. Also, many lenders will lend as high as 125% of the current value of your home.

A home equity loan for remodeling or improvements can also provide you with a new tax deduction. The interest deduction for a loan used for home improvement can exceed the usual limitation for home equity interest deduction. Check with your tax advisor for details.