4 of the best ways to use home equity in 2023
Whether you want to sell in the near future or you're looking for a way to improve your own living space, renovations are often a big part of homeownership. They can also be an important way to ensure you're protecting the investment you made in your home.
Some parts of the country are still enjoying high home values while prices are dropping elsewhere but any homeowner can benefit from making improvements to their home. Plus, with low-cost financing resources like home equity loans and home equity lines of credit (HELOCs), it can be affordable.
But sometimes, figuring out the best way to spend your money can be a roadblock. To help you get started, we've rounded up a few things you can do this year that will also get the highest return on your investment.
If you're thinking about taking on a home equity loan or HELOC to spruce up your home value, you may want to move some of these projects to the top of your list.
Thinking about a remodel? Compare today's top home equity rates now.
Why use home equity for home renovations?
As a homeowner, the equity you've built in your home is one of the best resources you have when it comes to making improvements or renovations.
For one, home equity loans and HELOCs tend to offer better interest rates than personal loans or high-interest credit cards. Today, you may qualify for a rate as low as 7% APR, depending on your credit score and other details in your application. By contrast, many of the best personal loan rates start at 9% to 10%, and credit card rates are closer to 20% or more.
In addition to potentially lower interest rates, renovations are one of the best uses for home equity because of the tax advantages. In certain instances, the interest that accrues on home equity loans or HELOCs may be tax deductible.
As long as the funds borrowed "are used to buy, build, or substantially improve the taxpayer's home that secures the loan," according to the IRS, you may be able to deduct the interest from your taxes.
Learn more about home equity rates you can qualify for today.
4 ways to use home equity and get the best return
Use this guide before starting your home project, to help ensure you get the best value.
Focus on the exterior
You've probably heard of curb appeal, so it's no surprise that a lot of the most valuable home improvements are focused on the outside of your home. From small tasks like new exterior doors to larger projects like replacing vinyl siding, improving your home on the outside can be incredibly valuable for not only its visual appeal but for its potential resale value, too.
Update your HVAC system
If you have an HVAC system that runs on gas, you can improve your home's value — and potentially save on your own heating costs — by switching to an electric heat source. While this can be a significant financial undertaking, upgrading to electric can also help improve the value of your home over time. Plus, it's one way to avoid being affected by rising gas prices resulting from inflation.
Look for smaller projects
You can save yourself both time and money by focusing on small home projects that make a big difference in your home. A fresh coat of paint in the kitchen, for example, or refreshed landscaping in the front yard can help your home feel new and inviting. Not only do smaller projects cost less money — improving your chances of a bigger ROI — but you can get started on your own time, often without more expensive professional help.
Make sure you can afford the costs
Regardless of the value it may add, avoid taking on a large or long-term renovation that you can't afford. If you're tapping into your home equity to fund a home improvement project, the most important way to make sure you get the most value possible is by making sure you can afford to repay the money you borrow.
Home equity loans and lines of credit are secured by your home. While that can help you get a great interest rate, it also means you could potentially lose your home if you're unable to pay back your debt. Make sure you read the fine print of your loan agreement and understand upfront how much you need to pay each month, so you can enjoy the full value of your home equity loan or HELOC.
Ready to take on a home project? Start comparing top home equity options today.
The bottom line
Taking on a renovation or even a relatively small home improvement project can cost a lot of time and money. To make the effort worthwhile, it can help to choose projects that offer the best value for your money. By doing this you'll improve your living space in the present while maximizing your home's value if you decide to sell in the future.
No matter which projects you decide on, consider whether a home equity loan or HELOC could be a good financing option for you. Not only can you score lower interest rates than on other loans, but you may also be eligible for valuable deductions come tax season.
