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Home renovation: HELOC vs. other financing methods


Date: Jan 20, 2023


Home renovations can add value to your home and can have tax benefits. But how do you finance a home renovation?

If you're like many homeowners in today's market, you may be considering a home renovation. Home renovations can add value to your home and make it more comfortable to live in, but they can also be expensive. How do you finance a home renovation? There are several different options available, but two of the most common are using a HELOC or taking out a personal loan. In this article, we'll compare these two options and explain why a HELOC is likely the best choice for most homeowners.

A HELOC, or home equity line of credit, is a loan that is secured by your home equity. However, because it is secured by your home equity, a HELOC typically has a lower interest rate than a personal loan. Additionally, with a HELOC, you only have to make interest payments until you reach your credit limit, at which point you can begin paying down the principal.

There are both fixed rate HELOCs and variable rate HELOCs. Fixed rate HELOCs have an interest rate that remains the same for the life of the loan, while variable rate HELOCs have an interest rate that can change over time. Variable rates are generally lower than fixed rates, but they can increase if market rates rise.

A personal loan is an unsecured loan, which means that it is not backed by any collateral. This makes personal loans a higher risk for lenders, and as a result, they typically charge a higher interest rate. Personal loans also have a fixed term, which means that you will be required to make equal monthly payments until the loan is paid off.

So, which should you choose? If you're looking for the lowest interest rate possible, a HELOC is probably your best bet. Ultimately, the decision comes down to your personal financial situation and what you're comfortable with.

If you're considering a home renovation, talk to your lender about financing options. They can help you determine whether a HELOC or personal loan is right for you. And if you have any questions, be sure to ask! We want you to succeed and will be happy to help you navigate the process.

Equal Housing OpportunityHitch Inc. NMLS 2383367
1. Qualified applicants may borrow up to 95% of their home’s value. This does not apply to investment properties.2. HELOCs have a 10-year draw period. During the draw period, the borrower is required to make monthly minimum payments, which will equal the greater of (a) $100; or (b) the total of all accrued finance charges and other charges for the monthly billing cycle. During the draw period, the monthly minimum payments may not reduce the outstanding principal balance. During the repayment period, the borrower is required to make monthly minimum payments, which will equal the greater of (a) $100; or (b) 1/240th of the outstanding balance at the end of the draw period, plus all accrued finance charges and other fees, charges, and costs. The lender will calculate this amount by taking the outstanding Account Balance on the last day of the draw period and dividing it by 240 months and then adding any finance charge that accrues but remains unpaid during the monthly billing cycle plus any other fees, charges and costs to the fixed principal payment that is due. During the repayment period, the monthly minimum payments may not, to the extent permitted by law, fully repay the principal balance outstanding on the HELOC. At the end of the repayment period, the borrower must pay any remaining outstanding balance in one full payment.3. The time it takes to get cash is measured from the time the Lending Partner receives all documents requested from the applicant and assumes the applicant’s stated income, property and title information provided in the loan application matches the requested documents and any supporting information. Our borrowers get their cash on average in 26 days. The time period calculation to get cash is based on the first 6 months of 2022 loan funding's, assumes the funds are wired, excludes weekends, and excludes the government-mandated disclosure waiting period. The amount of time it takes to get cash will vary depending on the applicant’s respective financial circumstances and the Lending Partner’s current volume of applications. Closing costs can vary from 3.0 - 5.0%. An appraisal may be required to be completed on the property in some instances. Not all borrowers will meet the requirements necessary to qualify. Rates and terms are subject to change based on market conditions and borrower eligibility. This offer is subject to verification of borrower qualifications, property evaluations, income verification and credit approval. This is not a commitment to lend. The content provided is presented for information purposes only. This is not a commitment to lend or extend credit. Information and/or dates are subject to change without notice. All loans are subject to credit approval. Other restrictions may apply.4. By inputting your phone and clicking the "Check my rate" button, you authorize your wireless carrier to use or disclose information about your account and your wireless device, if available, to us or our service provider for the duration of your business relationship, solely to help them identify you or your wireless device and to prevent fraud. Additionally, you authorize Hitch and its service providers to obtain your name, address, email and Social Security Number from Equifax in order to validate your identity and/or populate this form. See our Privacy Policy for how we handle your data.
Hitch, Inc.2158 NW Toussaint DriveBend, Oregon 97703(833) 512-0284

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