This blog is part two of our seven part HELOC series that will run through March 2019. Please visit the first blog in the series here, and return each month to view our latest addition to the series.

Coming in November: Using a HELOC for a Bathroom Remodel


Improve your bottom line while updating your kitchen

You watch all the remodeling shows, and all those homeowners get appraisals for more than what they shelled out. You might conclude that using a HELOC for a kitchen remodel will guarantee you the same result. But borrower, beware!

Not all remodels put money in your pocket. If you hire the right designer and contractor, you can add value to your home by upgrading your kitchen. If you don’t, your new kitchen could sink your spirits and your budget!

So let’s dig in and figure out the best ways to use a HELOC for a kitchen remodel to ensure that you get the kitchen you want, as well as improve your bottom line.

Equity and value

Your equity is the difference between the value of your house and what you owe on your mortgage. Bear in mind that your home’s value can also increase or decrease over time based on the housing market. So leverage your equity to improve your home, but leverage it cautiously.

How much you can borrow is calculated on the amount of equity you currently have in your home. Every mortgage payment you make increases your equity. And a successful renovation can increase the value of your home.

How a HELOC works

The first thing you need to know about a HELOC for a kitchen remodel, or for any purpose, is how it works. Don’t confuse a home equity line of credit with a home equity loan. There is a difference!

Both are based on the current equity you have in your home. But a home equity loan, like all loans, is paid out to you in a lump sum. You then make monthly payments on the whole amount at a fixed interest rate.

A home equity line of credit works more like a credit card than a traditional loan. You are approved for a total line of credit, but you only borrow as much as you need as you need it. You sign on for a specified time on your line of credit, and you are expected to pay it back at the end of the term. The interest rate can fluctuate.

One advantage of a HELOC over a home equity loan is that you only pay interest on the amount you actually spend. In other words, if you didn’t use the full line of credit, you only pay interest on what you borrowed.

It can make sense for a homeowner to take out a home equity loan for a single, one-time major remodeling project. But if you’re a do-it-yourselfer or if you prefer to do your remodeling in phases, a HELOC can make more sense than a loan.

Selling or staying?

The decisions you make for your kitchen remodeling project often hinge on whether you are remodeling for yourself or for a pool of potential buyers. If you’re putting your house on the market, using a HELOC for a kitchen remodel can make sense, but only if your choices are geared for a buyer’s taste, not your own.

  • Go with classic, timeless finishes. Remember, neutral doesn’t have to mean boring.
  • Don’t over-improve your kitchen. Be realistic about the overall value of your house for the current market in your neighborhood.

If you’re intending to remodel your forever home, you can make choices that fit your personal needs and taste.

  • Do you need a kitchen that’s handicap accessible? You might splurge on customized countertop heights.
  • Do you love your cherry red stand mixer? You might desire a matching color on your retro range.

Just be aware that what works for you might not appeal to many buyers. So don’t expect to fully recoup your investment on a personalized kitchen. But if you intend to stay put, a HELOC for a kitchen remodel allows you to enjoy your home now and well into the future.

Cosmetic makeover or major ‘reno’?

Even a cosmetic kitchen makeover can add up. Fortunately, you’re more likely to get a higher return on your investment than for a major renovation. So what’s considered a cosmetic makeover or a minor remodeling project?

Basically, as long as your reno doesn’t involve tearing down walls and relocating plumbing, your kitchen upgrade is cosmetic. Here are good investments for a HELOC for a kitchen remodel:

  • Upgrading major appliances. New, matching appliances add value. You could also see a return on purchasing energy efficient appliances.
  • Upgrading cabinetry. As long as your layout follows your original footprint, you can likely replace your cabinets with standard cabinetry rather than custom.
  • Countertops and backsplashes. If your cabinetry is in good shape, updating your countertop and tile backsplash can go a long way toward bringing your kitchen up to current tastes.

Sometimes, a facelift just isn’t enough. A HELOC for a kitchen remodel can still keep your finances upright even for a major reno. It all depends on the choices you make.

Your kitchen remodel project might need to be extensive for a number of reasons:

  • The original layout is awkward.
  • The original footprint is cramped.
  • The kitchen is isolated from the living/dining spaces.

An awkward layout is a daily irritation. When you can’t open the oven door because someone is standing at the sink, it’s time to design a layout that works. You shouldn’t have to live with a kitchen that frustrates you, and it’s hard (bordering on impossible) to sell a house with a non-functioning kitchen.

If your house was built with only one cook in mind, you could run into trouble quickly when cooking is a family affair. Swapping out appliances and cabinets just isn’t going to cut it. What you need is more square footage.

  • You can steal square footage from an adjacent room—an under-used dining room, a butler’s pantry, or over-sized mudroom.
  • You could increase square footage by adding on to your house. Be sure that you aren’t just tacking on space. To add value, you want space that functions properly and blends seamlessly with the rest of the house.

Regardless of the size of your kitchen, you might feel isolated from the rest of the family or your guests. A HELOC for a kitchen remodel could be the perfect solution to this problem. Tearing down one wall to create an open concept living space can multiply into a number of expenses.

  • No doubt you’ll need to address the layout of the kitchen. That could mean relocating plumbing and electrical.
  • Merging two or more rooms requires new flooring.
  • If you change windows and doorways, you’ll need new exterior siding.

Using a HELOC for a kitchen remodel can quickly lead to additional home improvements. Be prepared!

Home, Sweet Remodeled Home

Using a HELOC for a kitchen remodel can be a smart move. You get the kitchen of your dreams AND add to your home’s value. If your home is your biggest asset, it makes sense to protect its value by making home improvements.

Getting a HELOC for a kitchen remodel from United Financial is also a smart move. We offer great rates. But don’t just take our word for it. The Wall Street Journal offers this advice regarding HELOCs:  “One last tip: go to a credit union. Credit unions often offer better home equity rates than other banks and lenders.” Now that’s a win-win!

Contact United Financial today to inquire about a HELOC to update or renovate your kitchen.