Home equity is an increasingly popular strategy for financing large-scale projects, such as remodels and renovations. Though not an explicitly “green” method, drawing from home equity is an excellent method for kickstarting your environmentally-conscious investment. A home equity line of credit, also called HELOC, is a loan in which a lender agrees to lend an amount of funds where the collateral is the borrower’s equity in their house. Similar to a second mortgage, homeowners often use this resource for additional investments, such as home improvement.
In the first quarter of 2017, the United States had $13.7 trillion in home equity, according to Freddie Mac. This figure was double than what it was in 2012 and has only increased further. Rises in home values have led homeowners to discover the existence of equity within property, allowing them to decide if they want to refinance in order to increase the value of the home through remodeling. Though some homeowners may feel uncomfortable “borrowing against their homes,” a home equity line of credit is almost always put to good use when it is spent on the home—especially if those updates include green investments.
So, how does home equity help green investors? When used for green home financing, it increases the value of the homeowner’s largest asset. If invested in the home itself, the total payout post-renovation could be even greater. This strategy also provides an opportunity for homeowners to make lifestyle upgrades, meaning they can take on more discretionary upgrades. This could include anything from a water-saving toilet to solar panels on the roof. These projects are excellent candidates for home equity loans and lines of credit, as the improvements made to the home will only increase its value. Plus, homeowners will reap the benefits of environmentally-friendly and sustainable lifestyle upgrades.
According to The New York Times, there has been a slight uptick in applications for home equity loans, rather than lines of credit, as borrowers react to rising interest rates. That said, if you have the cash to finance a project, it may be wise to use it. Interest rates are trending up and refinancing existing mortgages for remodeling projects is becoming a less attractive option. However, dipping into your home equity is a great solution if done strategically. If you’re ready to increase your monthly payments in exchange for a greener lifestyle and high return on investment, consider this financing strategy.