Improve, Don't Move, with a Home Equity Loan

The housing market's bursting bubble has crippled the industry.  Instead of leap-frogging to a bigger and better house, many homeowners are opting to improve their current dwelling.  It's a smart move, especially if you use a home equity loan.  Just be certain that your improvements will help the resale value of your property.

In the midst of mortgage madness, it seemed quite normal to move every three years.  A short time ago, home values were constantly escalating, and they appeared to have no peak.  Using tremendous equity gains, people routinely moved to their dream homes.  And before their change of address notifications even went out, they started eyeballing an even dreamier property.

Needless to say, those days are gone.  The housing market bubble has burst with a sonic boom, and today's homeowners aren't coveting thy neighbor's abode.  Instead, they're taking a long look at how to make improvements to their own properties.  With interest rates low, the smart ones are using a home equity loan to make it happen.

Make it worthwhile

Target the kind of improvements that are known to improve your home's value.  A kitchen remodel, or a renovated bathroom, usually results in the greatest value increase.  They'll also prove to be the most expensive-especially if you want the job done right.  You can, however, initiate some less expensive improvements that will improve a home's curb appeal.  New carpeting, a fresh coat of paint, and a redecorated interior can enhance the aesthetic value of your home.  It will also make it a more pleasant space to live in.

Financing with home equity loans

One of the smartest ways to finance a home improvement is to tap your home's equity.  A popular method for most homeowners is the second mortgage, which consists of two types of loans:  the home equity line of credit (HELOC), and the home equity loan.  

The HELOC works much like a credit card.  A lender provides you with a line of credit, which uses your home's equity as collateral.  Any balance you carry on the line is charged interest, which is generally less than a credit card's rate and is also tax-deductible.  A HELOC works best for smaller purchases, like tuition payments, or as an emergency source of funds.

A home equity loan is a fixed-rate, fixed amount loan.  Unlike the HELOC, which has a variable interest rate, the home equity loan is set, so you can avoid the volatility of the mortgage rates.  This is the ideal loan for a one-time, large expenditure, like a home improvement.

The housing market can be a scary place these days.  If you're feeling uncertain about whether you should venture into it, consider the alternative of initiating some home improvements.  With mortgage rates low, you can get a great loan to make some significant improvements.  You'll be ready when housing values bounce back, and your house will be worth even more.