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Using Equity to Winterize Your Home

Winter can be a beautiful time of year … just as long as the winter weather doesn’t invite itself indoors.

Thankfully, there are plenty of ways to protect you and your home from the elements. Some solutions are inexpensive or fall into the DIY category, like weather stripping and caulking. Others, like window or furnace replacement, are beyond the skill set of most homeowners—often exceeding savings account balances as well.

If you have limited savings and your home needs protection, a home equity loan or home equity line of credit (HELOC) may be the answer. Follow these steps to see if a home equity loan or HELOC is right for you.

Take stock

Start by making a list. What areas of your house are drafty? What needs to be replaced? What local resources are available?

Many utility companies offer free energy audits and DIY improvement tips to keep the heat inside your home (and save you a small fortune on your electricity or gas bill). Drafty doors and windows can be fixed with the help of a handy friend or a YouTube tutorial. More labor-intensive projects, such as installing storm windows, storm doors, and adding insulation to an attic—particularly if access is tricky—might require a professional.

Many utility companies offer free energy audits and DIY improvement tips.

Hire a contractor

If you know your heater is reaching the end of its life, or the flame in your gas furnace is burning yellow instead of blue, it's time to call a contractor.

To avoid headaches down the road, make sure to research contractors’ backgrounds and reputations before requesting bids. Check government websites that compile licensing and business records, and visit consumer-oriented sites like Angie's List and the Better Business Bureau. As a general rule, you should get at least three bids before deciding who to hire. And don’t forget to ask for client references!

Determine how you’ll pay.

If you don't have enough in your savings, research home equity loan or HELOC options in your area. Typically, both loans and HELOCs:

  • Carry lower interest rates than a personal credit card.
  • Are secured by the equity in your home; this means you can qualify for a bigger loan using your home as collateral.
  • Let you deduct interest during the tax season using the IRS' home mortgage interest deduction.

Keep in mind, when setting an interest rate, lenders are likely to weigh the value of your home, how much you still owe, and your overall creditworthiness.

It’s important to note that there are significant differences between home equity loans and HELOCs. The common procedure of most home equity loans is to deliver your funds in one lump sum while establishing a fixed interest rate and repayment over a specific period of time. A HELOC, on the other hand, 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 increase or decrease. In addition, many HELOCs come with specified draw periods that are followed by repayment periods.

Keeping the cold outdoors is a great reason to tackle home winterization projects, but the value you’ll add to your home will be beneficial in all seasons—and for years to come. Staying warm will just be a bonus.

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