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Why you should use home equity to make household repairs

Interest on a home equity loan used to make eligible household repairs may be tax-deductible. Getty Images

As the weather warms, many prospective homebuyers use the spring and summer months to search for a new home. Inventory is typically more robust in the spring, giving buyers more options to choose from - and an easier move than they would have endured during the winter.

The spring isn't just beneficial for prospective buyers, however. Current homeowners may also take advantage of the season to make home repairs. This can take the form of emergency fixes or more extensive home improvements and renovations that were previously delayed. 

There are multiple ways to pay for these repairs, from savings to personal loans to credit cards. Homeowners, however, should strongly consider using their home equity to make home repairs. This can primarily be done with a home equity loan or home equity line of credit (HELOC). There are multiple advantages to paying for home repairs this way, three of which we will explore in this article.

If you think you could benefit from using your home equity, start exploring your options here now.

Why you should use home equity to make home repairs

Here are three reasons homeowners should use their home equity to make home repairs.

It may be tax-deductible

Unlike most other forms of credit, both home equity loans and HELOCs are eligible to have their interest deducted from your annual taxes if used for appropriate home repairs and improvements. 

"Interest on home equity loans and lines of credit are deductible only if the borrowed funds are used to buy, build, or substantially improve the taxpayer's home that secures the loan," the IRS explains. "The loan must be secured by the taxpayer's main home or second home (qualified residence), and meet other requirements."

While interest rates on these types of credit are generally lower than many alternatives, the interest paid could still be substantial if you withdraw tens of thousands of dollars in equity. It's advantageous, then, to deduct that from your taxes rather than using a credit card, for which interest isn't deductible.

If you're looking to make major home repairs, start by exploring your equity options now.

It comes with lower interest rates

With higher interest rates on everything from mortgages to credit cards, it can seem like there's no viable alternative to help make ends meet. But home equity loans and HELOCs typically come with lower interest rates.

Assuming you have a good credit score and a clean credit history, you can secure one of these credit options at a 7% interest rate, approximately. Compare that to a credit card at 20% and a personal loan at 10%, and it's easy to see how much more you can save by leaning on the equity you've built up in your home. 

Just be sure to shop around. While you may get the best terms and rates with your current lender, you don't have to use them when accessing home equity. Another institution may offer you more favorable terms. So research multiple lenders before signing on the dotted line.

You may have more to work with

If you live in a part of the country where home values have increased, you could be sitting on a substantial amount of equity you can use to make home repairs and improvements. Compared to the limited amount of money you'll be able to get with a credit card or personal loan, you may have more to work with by turning to your home instead.

Most lenders let you borrow up to 80% of your home's equity, which means you could be eligible for tens (if not hundreds) of thousands of dollars to fix up your home. So, if you're looking for more robust financing options, a home equity loan or HELOC may be worth it.

The bottom line

If you're looking to complete major renovations or home repairs this spring and summer, review all of your credit options first. It's possible you could get a beneficial rate and terms for a personal loan or credit card, but chances are you'll be able to get a better deal by using your home's equity.

A HELOC or home equity loan may be tax-deductible if used for eligible improvements and both generally come with lower interest rates than more popular credit products. And if you're living in a part of the country where real estate values have risen, you could have a lot more money to play with than you would if you applied for a different credit type.

Explore all of your HELOC and home equity loan options here to see if this route makes sense for your next home repair. 

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