Using Equity Loans to Winterize Your Home

There are all sorts of ways to guard your home from the winter elements. Some are cheap and may even fall in the do-it-yourself category, like adding weather stripping and caulking.

Other endeavors, such as swapping out single-pane windows for energy-efficient double panes, or replacing a furnace, are beyond the skill set of most homeowners — and often beyond the balances in many savings accounts as well.

In that case, taking out a home equity loan or line of credit may be the answer. Here’s what you should know before you do.

Take stock

If you know your home needs winterizing, it makes sense to get going on those projects in summer, or sometime before it gets really cold. It’s a lot easier to work a caulking gun when your teeth aren’t chattering or to have your furnace serviced when demand is down.

What’s on your list? Many utility companies offer free energy audits and tips on improvements you can make so that your home doesn’t lose heat so quickly, saving you money on your heating bill.

Drafty doors and windows may be something you or a handy friend can handle. For many homeowners, though, installing storm windows or storm doors and adding insulation to an attic — particularly if access is tricky — might start to push the envelope.

Hire a contractor

If you know your heater is reaching the end of its run, or your gas furnace’s flame is burning yellow instead of blue, it’s probably time to hire a contractor.

You can avoid headaches that come from dealing with unscrupulous or second-rate contractors by researching their backgrounds and reputations before seeking bids. Check government websites that compile licensing and business records, as well as consumer-oriented sites such as Angie’s List, your local Better Business Bureau or, if you live in one of the many metro areas it serves, the Consumers’ Checkbook.

It’s usually a good idea to get at least three bids, and to ask for client references.

Decide how to pay for it

If you don’t have enough savings to afford winterizing your home, look into taking out a home equity loan or home equity line of credit. Typically, both loans and HELOCs:

• Carry lower interest rates, compared with, say, a credit card.
• Are secured by the equity in your home; this means you can qualify for a bigger loan but also that you are using your home as collateral.
• Allow you to deduct interest come tax time, under the IRS’ home mortgage interest deduction.

And when evaluating whether to grant either type of loan, and when setting an interest rate, lenders are likely to weigh the value of your home, how much you still owe and your creditworthiness.

But there are significant differences. With a home equity loan, you receive your money in one lump sum, and the terms call for a fixed interest rate and repayment over a specific period of time.

By contrast, a HELOC is a revolving line of credit, similar to a credit card. You pull from it as needed, up to a specified amount. HELOCs also come with variable interest rates. You pay only on what you draw, but the rate may rise or fall from what it was when you took out the line of credit. Many HELOCs also come with specified draw periods, followed by a repayment period to pay back the outstanding balance plus interest.

Keeping warm in the winter is certainly a good reason to tackle a home improvement project. And because your home is probably your single most valuable asset, it makes good sense to keep it in top condition — to maintain or boost its value for resale, or to pass it along to your kids. For important big-ticket items, home equity loans are a reasonable route.

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