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What makes a HELOC particularly good for home improvement projects is that you don’t have to take the money all at once. HELOCs work like debit cards. You use the money when you need to buy something or pay someone. You might end up not taking the full amount of your HELOC, which would save you money on interest. As an example of this you might get a HELOC for $15,000 but end up using only $10,000 of it. In this case, you’d pay interest only on the $10,000 and not the $15,000.
HELOCs have varying terms and some are interest only. We have friends that took out a $75,000 HELOC to help buy an investment property. They pay only the interest on it until 2022 when they will have to begin paying down the principle. Of course, they expect to sell the property long before then and pay off the $75,000.
You would need equity
To get either a HELOC or a home equity loan, which is another option, you will need to have enough equity in your home to satisfy the 80/20 rule. This is based on the fact that banks will only loan up to 80% of your equity. If you wanted to borrow $20,000 to make some energy efficient improvements you would need to have at least $25,000 of equity. If you’re not familiar with the term equity it’s the difference between what you home’s worth and what you owe on your mortgage. If your home’s worth, say, $200,000 and your mortgage balance is $150,000 you would have $50,000 in equity and could borrow up to $40,000 (the 80/20 rule).
To be more comfortable
The second glaringly obvious reason to make your house more energy efficient is because it would improve your comfort. If you caulk, weather-strip your windows and add some insulation it won’t just save you money. It will warm up those parts of your home that are cold and drafty. Just imagine how it would feel to sit in a warm, comfortable family room because you were able to make just a few inexpensive fixes and eliminate those cold drafts. You could even save a little bit more by closing down the heating vents in rooms you don’t use much.
The reasons that might surprise you
The are two important reasons to increase your home’s energy that might not be as obvious as the two you’ve read. The first is it will increase the value of your home. The National Association of Home Builders recently reported the results of “a questionnaire in which respondents ranked more than 120 elements of a home. The top-ranked item, considered ‘essential’ or ‘desirable’ by 94% of the 3,682 respondents, was Energy Star-rated appliances. The 3rd-ranked item, considered ‘essential’ or ‘desirable’ by 91% of the respondents, was an Energy Star rating for the entire home. (The 2nd-ranked item was a laundry room.)” And there’s more. Two University of California students did a study comparing 1.6 million homes that had been sold in the state in the years 2007 to 2012 that revealed there was a 9% price premium for homes with an Energy Star, LEED for Homes or Greenpoint Rated Label over those that weren’t.
There were also 18,605 homes analyzed in the Chicago area. This study found that those that disclosed the cost of their gas and electricity sold quicker, were more likely to close and received a higher percentage of their asking prices.
Helping the environment
Finally, you might not have thought of this but there is a connection between increased energy efficiency and the environment. It takes some work to connect the dots but when your home uses less power, less carbon goes into the atmosphere. Carbon is the big culprit in climate change. We are already seeing worse weather patterns with floods, droughts, more severe storms, terrible hurricanes and tornadoes, which are hurting homeowners across the country. The Department of Energy says most of the energy used by residences like yours comes from fossil fuel. If you reduce the amount of energy your home uses, you’ll be consuming less fossil fuel, putting less carbon into the atmosphere and doing one important thing to help our world.