Buying a Home / Budgeting

How A Home Equity Loan Can Help You Tackle A Renovation

Words by Abbie Dyer on Jun 13, 2022 9:17:16 AM

As the housing market remains competitive and mortgage rates1 begin to fluctuate, many people are reconsidering their plans to move this year. Instead, some people are looking for ideas to spruce up their current homes. If your next project requires a large amount of funding, a home equity loan may be for you.

Reimagining your home and property, from refreshing the kitchen, adding a new bathroom, or building a pole barn, can help you have a whole new appreciation for your space. But these big projects require a lot of planning and a budget that can withstand the costs. That’s where a home equity loan can help.

Learn more about the two types of home equity loans to decide if this funding option is right for you and your project.

What is a home equity loan?

If you need a large amount of funding for home renovations, household upgrades, educational costs (like tuition), or if you’re hoping to consolidate your debt into one loan, then a home equity loan might be a great option. A home equity loan is a type of secured loan that uses the equity in your home (more on that in a minute) to help determine how large of a loan you can take out. Secured loans often have higher financing limits than unsecured loans because a piece of collateral (in this case, your home) is written into the loan terms.

Equity is the difference between the appraised value of your home and what you still owe on your mortgage. For example, if your home is valued at $200,000 and you still owe $150,000 on it, you have $50,000 in equity in your home. The amount of equity in your home, your credit score, income, debt-to-income ratio, and other factors help determine how much financing you can take out.

There are two types of home equity loans: A line of credit or a fixed-rate loan.

What’s the difference between the two types of home equity loans?

A home equity line of credit (commonly abbreviated as HELOC) allows you to pull (or draw) funds as you need them over a specific timeframe. Lake Trust HELOCs have a 5-year draw period2, meaning you can use your HELOC as much or as little as you need to over the next five years. Keep in mind that your monthly payment will fluctuate depending on how much you borrow. After the 5-year draw period is up, you can reapply to continue using your HELOC or close it and just make payments toward any remaining balance. This loan is a good option if you’re renovating your home and need to purchase supplies or pay contractors at different times during the project.

A fixed home equity loan allows you to get financing in one lump sum and make the same monthly payment over a specific amount of time, or term. Both the term and the interest rate will remain the same over the life of the loan. To decide if a 10-, 15-, or 20-year loan term2 would work best for your budget, consider the amount of funding you need and your comfort level with the monthly payment offered at each term. A fixed home equity loan is a good option if you know exactly how much your project or other large purchase will cost.

Both types of Lake Trust home equity loans start at a minimum of $10,000.2

What can I use a home equity loan for?

Home equity loans are often used to pay for home renovations, additions, or upgrades. Projects like a new roof, solar panels, a whole home generator, new furnace or A/C unit, siding, insulation, or other energy-efficient upgrades can be expensive up-front, but they often lead to cost savings over time. And an addition or renovation could add value to your home. A home equity loan can help you pay for these projects now while allowing you to make payments over time.

Another common use for a home equity loan is debt consolidation. If you have several loans with a high interest rate, like credit cards, personal loans, or student loans, you may be able to save money and pay off your debt faster with a home equity loan. You can use a home equity loan to pay off your other debts and only have one monthly payment. And the interest rate may be lower than the rates on your other loans.

Other uses for a home equity loan include a back-up emergency fund, educational expenses, or another large expense.

How does a home equity loan compare to other types of financing?

By using your home as collateral on the loan (since this is a secured loan), you can often secure a much larger amount of financing than you could with an unsecured loan, like a credit card, signature loan, or line of credit. If you’re planning a large home project or have a high-dollar purchase in mind, a home equity loan might be the right financing option for you.

One nice perk of a home equity loan is that it can offer tax advantages for some people. However, you’ll need to consult with your tax advisor for more specific details about whether this type of financing offers any tax benefits for your situation.

What do I need to apply for a home equity loan?

If you’re not sure if a home equity loan is right for you or if you need help deciding which type of home equity loan to apply for, give us a call at 888.267.7200 or visit any branch and our team can help you out.

If you’re ready to apply, you’ll need a few pieces of information to get started:

  • Personal information (address, phone number, email, etc.)
  • Estimate of how much you’d like to borrow
  • Household income
  • Estimate of yearly property taxes on your home
  • Information for joint applicant if you plan to have someone else on the loan with you

Visit the home loans page on our website, give us a call, or stop by any branch to start your application today. And explore the power of your home.

SEE ALSO: Is Now A Good Time To Refinance Your Home?  |  The 6 Most Overlooked Costs Of Owning Your First Home


1Third party website. Lake Trust Credit Union is not responsible for the content, availability, security or compliance of any linked third party websites. In addition, the site's privacy policies may differ from those of Lake Trust.

2Visit for complete home loan disclosures and product details.


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