Well I don't consider myself a homesteader in a strict sense, I often find that homesteaders often ask questions about income and financial matters. This article is to address a bit of confusion about how a home equity loan works and why home improvement is a secret weapon you can take advantage off.
You should always consult a tax and licensed financial advisor in your area. That being said, I am a licensed and bonded insurance agent and have over 20+ years of banking and financial experience and offer this advice freely.
Rates will be going up soon and it makes sense to lock in a home equality loan now while the market for homes is still high (our home value has gone up 30% in the last year alone) and bank rates are low at the time I'm writing this article, they are expected to go up by the end of March.
We need to replace our windows which we believe are original to the home. Frankly I can't believe how much these companies want to replace our windows for.
Seriously, the highest estimate was 25K. The most affordable out of the various window companies we contacted (and they all offer more or less the same product) was around 17K. So we started contacting actual building contractors in the area and were able to get a good middle of the road window for around 10K. That's replacing 13 windows and doing a bit more on the side for ass as well.
New windows we need, a expanded garage we do not (although it would be nice).
We also need to do some paint and plaster, and update the kitchen plus the bath.
There are lots of other smaller projects as well.
The question becomes...what do we want to do and how will we pay for it?
This coming September we will have been in this home for two years and other than a metal roof, we have done little to improve the quality of the home. Our home value during that time increased nearly 40K. Our windows will be paid for by a Home Equality loan.
New windows will not only save us money on our heating bills, but they should increase the value of our home by an average of 72.3%. In other words, our investment of roughly $10,000. dollars will increase our over all home value by an additional $7,230 dollars. That is building the equity or value of our home overall.
When I'm meeting with investors, one thing that is always brought up is your Return On Investment, or ROI, which is roughly the return on your original investment. You want to make money, depending on who you are talking to and the risk levels they are comfortable with that can be anywhere between 7 to 12% on average.
Home Improvement loans are generally a good investment for two simple reasons:
- You are increasing the value of your home. The price of your home should be going up over time anyway, this is due to a variety of reasons. However the less work that needs done in a home makes that home more attractive to buyers. Plus as you age, the value of your home should be part of your retirement planning.
- Your home is an investment in the future. Treat it as such! Due to the market my home increased by 30% in the last year alone, or roughly by $50K. That is money that you have sitting there just waiting to be invested. You can use that money to make other investments (who says it has to be for your home?) or consolidate your debt.
A warning! Home equality loans are a bad idea if you are overburdening your finances or just shifting debt around and not paying the debt down. Always speak to an independent financial advisor!
Home Improvement Loans are generally tax deductible, however that requires itemization of your taxes and we always recommend speaking to a tax advisor as well.
Investing in your home makes sense then. Do you want solar panels because you want to combat climate change or just take your home off the grid? Then this is one way to pay for them. Make the system work for you. The value of your home is going to go up if you have an updated kitchen or bath, and these are traditionally the most expensive items to upgrade in a home.
You may not want to sell your home today or for many years from now. That's okay because good investments are long term investments. Investing in your property is generally a safe, low risk high return option. Home flippers have known that dirty little truth for years.
So what type of home equality loan should I get?
Their are basically two types of home equity loan. The HELOC or Home Equality Line of Credit, which you should think of as a variable rate credit card. The funds become available for your use once you pay them back, but it's subject to a variable rate and right now rates are going to go up.
A traditional home equality loan is a fixed rate and you have a certain amount of time to pay that loan back. Generally speaking I recommend this type of loan. Banks will often be happy to refinance them when rates drop and you (should) have a nice low interest rate when rates are high.
If you borrow more than you need and don't have another project or investment lined up, return those funds to the bank. Why pay interest on something your not using? Sadly you be surprised on how many times I've seen that happen. Either one will work for your needs and depends on what your looking to do.
Generally speaking I like the certainty of a traditional Home Equality loan simply because in pivotal times like these it's best to hedge your bets.
If you do any home improvement yourself, you want to make sure that it's done right the first time. Don't take shortcuts. It may save you money but if something is not done correctly you are actually lowering your return of investment. Plus, many companies offer a transferable warranty on a product which can help you if you do wish to sell your home or another property.
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