Tapping Into Home Equity: 5 Home Improvement Projects

You've lived in the same house for a while, and those little things you've been meaning to fix are starting to pile up. The kitchen cabinets may look a little worn, or the bathroom could use a freshening. Maybe you're contemplating a completely new space, like a finished basement or a larger bedroom. Any time of year is the right time to complete a home remodel project that can not only brighten your home but also provide a good return on investment.

Do you have the money to embark on a pricy home improvement project? Whatever the project, you might be wondering how to fund your vision. While a personal loan or credit card might seem like an easy answer, they often come with high interest rates. Instead, one of the most innovative ways to finance a major home improvement project is by tapping into your home equity.

Think of your home equity as your home's savings account. It's the difference between your home's current value and what you still owe on your mortgage. As you pay down your loan and as your home's value increases, your equity grows. Equity can be a welcome financial resource, giving you access to the cash you need to complete those projects. Let's explore some of the most popular home improvement projects you can fund by tapping into your home equity and why it's a smart financial move.

The Borrowing Power of a Home Equity Loan or HELOC

Before we look at specific projects, let's quickly talk about how you can access that money. A home equity loan and a home equity line of credit (HELOC) are the two most common ways to use your home's value.

A home equity loan is a lump sum of money you borrow against your home's equity. It's an excellent option for a one-time, significant expense, like a complete kitchen remodel. You receive all the funds upfront and repay them with a fixed interest rate over a set period.
A home equity line of credit (HELOC) is more flexible. It's like a credit card for your house, allowing you to borrow money as you need it, up to a specific limit. You only pay interest on the amount you've borrowed, making it ideal for ongoing or multi-stage projects, like redoing your landscaping in phases.

Both options can offer lower interest rates than personal loans or credit cards because your home serves as collateral. The interest on your loan may even be tax-deductible. See specific rules on the IRS website and check with a tax advisor for clarification.

Home Equity Loans For 5 Home Improvement Projects

1 Kitchen Remodel

Kitchen improvement projects are at the top of almost everyone's list. After all, we spend so much time in our kitchens. It's the gathering place for the entire family and often the center when we entertain. Kitchen enhancements can range from a complete gut and remodel to simple improvements like adding new windows, upgrading lighting, or freshening up with a splash of paint. The sky is the limit when it comes to your kitchen. You can install an island, replace countertops, refinish or replace cabinets for added space and functionality, or install tile flooring. Nearly any kitchen improvement project will enhance the look and feel of your home's busiest space. Remodeling a kitchen can be a significant undertaking, but it's also one of the best ways to get a great return on your investment (ROI). Best of all, it can be accomplished with the help of a home equity loan.

Major Kitchen Remodels: A complete gut renovation might involve moving walls, replacing all appliances, installing new cabinets, and adding a center island. The return on investment for a major kitchen remodel can be significant. You may recoup 50% of the cost when you sell your home.

Minor Kitchen Updates: You don't have to take on major debt to make a significant impact. A minor kitchen update could include painting old cabinets, replacing hardware, installing a new backsplash, and swapping outdated light fixtures. For example, updating an old, dark kitchen with a coat of white paint on the cabinets, trendy new fixtures, and a more modern tile backsplash. It completely transformed the space for a fraction of the cost of a complete remodel. Minor kitchen remodels can provide an even higher ROI, often over 90%.

Using your home equity for a kitchen remodel allows you to get the kitchen of your dreams without draining your savings account or putting much pressure on your monthly budget.

2 Bathroom Renovation

Who among us doesn't dream of a bathroom makeover? Imagine the relaxation and luxury of soaking in your own very Jacuzzi tub. The spaciousness and water efficiency of a new shower may be more your thing. Bathroom remodels are always a popular choice for home improvement.

Similar to the kitchen, a renovated bathroom is a huge selling point. It's a space where you can create a personal sanctuary, whether it's a luxurious master bath or a chic powder room.

Major Bathroom Renovation: This could involve replacing the tub with a walk-in shower, installing a new double vanity, and retiling the entire space. A major bathroom renovation can have an ROI of 60% or more.

Minor Bathroom Updates: Even a minor renovation can make a huge difference. Think new paint, a modern vanity with a new faucet, and updated lighting. You'll be amazed at how a few simple changes can make the space feel brand new.

Using a home equity loan for a bathroom renovation is a smart way to finance these updates, which not only improve your comfort but also add significant value to your home.

3 Energy-Efficient Appliances and Upgrades

Upgrading to energy-efficient appliances is an investment worth making. Added energy efficiency is an excellent use of a home equity line of credit, which enables you to pay as you replace things. Replacing low-efficiency furnaces, water heaters, and other appliances can help you reduce your monthly energy costs as well. Investing in energy efficiency is a great way to save money in the long run and make your home more comfortable.

Solar Panels: Installing solar panels is a significant investment, but it can lead to massive savings on your electricity bills and may qualify you for tax credits. Plus, a home with solar panels is a hot commodity on the real estate market.
Insulation & Windows: Upgrading your insulation or replacing old, drafty windows can significantly reduce your heating and cooling costs. The initial cost can be high, but the long-term savings on your energy bills are substantial, making it a sound financial choice. Window replacement can also net you a whopping 60% return on investment, depending on the material used.

Imagine your furnace needs replacing. You decide to install a new high-efficiency furnace. You know it will be a considerable expense. You research and opt to use a low-rate home equity loan from your local credit union to cover the cost. You won't only get a great fixed rate, but you'll also save a bundle on monthly heating bills.

4 Interior Painting

It might seem like a small project, but a fresh coat of paint can instantly transform a room. It's one of the most cost-effective ways to update your home. Specific colors can even brighten your mood or help to calm or relax you.

DIY vs. Professional: If you're tackling a whole house painting project, it might be more efficient to hire a professional crew. They can complete the job quickly and with a high-quality finish.
Color Selection: Choose colors that fit your style, but also consider what might appeal to potential buyers down the road. Neutral colors like off-white, light gray, and beige are classic choices that make rooms feel larger and brighter. If you're painting more than one room, you'll want to be sure the colors complement each other. Keep all of this in mind when selecting paint colors.

While you could use a credit card for this, financing a larger painting project with a HELOC allows you to pay for materials and labor as you go, without the high interest rates.

5 Interior Decor Updates

You don't need a complete renovation to make your house feel like a home. Strategic decor updates can have a massive impact. If your carpeting, furniture, or window treatments have started looking shabby, it may be time to replace them. What you do depends on your budget. Focus on a room or two, or give your whole house interior a mini makeover to make it more cohesive. You can accomplish large projects, such as refinishing hardwood floors, replacing worn carpeting, or buying new living room furniture, with the help of a home equity loan. If your budget is limited, you can opt to complete several smaller projects with the help of a HELOC. Consider replacing old wall art, incorporating some contemporary lighting, or updating your bedroom with beautiful new bedding..

New Furniture: Is it finally time to replace that worn-out sofa or get a new dining room set?
Flooring: Replacing old carpet with new hardwood or luxury vinyl plank flooring can make a huge difference.
Lighting: Modern light fixtures can completely change the ambiance of a room.

These updates are often more about improving your enjoyment of the space rather than a huge ROI, but they make your home feel more comfortable and livable. A HELOC can be perfect for these types of projects, allowing you to buy pieces as you find them, without having to pull all the cash out at once.

The ROI Factor: Making Your Home Equity Work for You

When you're considering a home improvement project, always think about the potential ROI as we've mentioned above. The Journal of Light Construction 2024 Cost vs. Value Report will provide you with details on the top home improvement projects when it comes to ROI. While it's essential to love the changes you make, some projects are better investments than others.

First Impressions Matter: Projects that enhance your home's curb appeal and make a great first impression on visitors are high on the ROI list. This includes garage door replacement, entry door replacement/steel, and manufactured stone veneer.
Kitchen & Bathroom: These projects consistently offer a good return on investment. A fresh, modern kitchen or bathroom is often the deciding factor for a homebuyer.
Maintenance & Repairs: Investing in a new roof or HVAC system not only provides a decent ROI but also protects your investment and prevents future, more expensive problems.

By using your home equity to finance these projects, you're not just spending money; you're reinvesting in your most significant asset. You're increasing its value, improving your living space, and making it more appealing to future buyers should you ever decide to sell.

As you contemplate possible home renovation projects, remember that a home equity loan or HELOC can help give your budget the boost it may need. There are plenty of improvements that can be made at any time of year, no matter the weather. Ready to turn your home improvement dreams into reality? Spirit Financial provides members with competitive, low fixed rates and flexible terms on home equity loans. To learn more about tapping into your home equity to complete a home improvement project, visit Spirit Financial today.