Should You Use a HELOC or Cash for Home Improvements?

When planning home improvements, one of the most important decisions you’ll face is how to finance your project. Homeowners often weigh two common options: a HELOC or cash for home improvements.

The best one for your situation will depend on both the scope of your project and your financial situation.

In this article, we’ll guide you through whether tapping into your home equity with a HELOC or using your savings is the smarter option.

Understanding a HELOC for home improvements

A home equity line of credit (HELOC) allows you to borrow against the equity you’ve built in your home.

Unlike a lump-sum loan, a HELOC provides flexible access to funds over a set period—usually 5 to 10 years.

This is especially useful for home improvement projects where costs can change or arise unplanned throughout the project’s timeline.

Because your home secures a HELOC, it typically offers lower interest rates than unsecured loans or credit cards.

This makes it an appealing option for homeowners who want to finance substantial or ongoing renovations without depleting their savings.

Benefits of using a HELOC for home improvement

• Lower interest rates: HELOCs often have lower rates than personal loans since your home secures them.
• Flexible borrowing: You should only borrow the amount you actually need when you need it and pay interest on the money you use.
• Potential tax advantages: In some cases, interest paid on a HELOC for home improvements may be tax-deductible (consult a tax advisor for details).

Cash savings: Pros and cons

If you have a robust savings account, using cash for home improvements might seem like the easiest option.

While avoiding debt is a significant benefit, there are potential drawbacks to consider when depleting your cash reserves.

Benefits of using savings:

• No debt: You won’t incur interest or make loan payments.
• Immediate access: Cash is readily available, allowing for quick payments without the need for loan approvals.

Downsides of using savings:

• Depleting your financial safety net: Using cash reduces your cushion for emergencies, such as unexpected medical bills or job loss.
• Opportunity cost: Money spent on home improvements could have been invested, potentially earning interest or other returns.

Comparing HELOC vs. cash for home improvements

Let’s look at a side-by-side comparison of using a HELOC or cash for home improvements.

Access to funds

• HELOC: Provides ongoing access to funds during the project, allowing you to borrow as needed and pay interest only on what you use.
• Cash: Limits you to what you’ve saved, which may restrict your project if costs exceed expectations.

Impact on personal finances

• HELOC: Helps preserve your savings, maintaining financial flexibility for emergencies or investments.
• Cash: Depletes your savings, potentially leaving you vulnerable in the event of unexpected expenses.

Costs

• HELOC: While interest is incurred, HELOCs offer lower rates compared to personal loans, credit cards, and cards, making them cost-effective for larger projects.
• Cash: Avoids interest, but you miss potential investment gains by using your savings.

Long-term financial planning

• HELOC: Allows you to spread the cost of your renovation over time, making larger projects more manageable without draining your financial resources.
• Cash: Once spent, it may take time to rebuild your emergency fund or savings.

Why a HELOC might be the better option

For many homeowners, a HELOC provides distinct advantages over using cash for large or ongoing home improvement projects:

• Preserve your savings: A HELOC allows you to maintain a financial safety net for emergencies or future opportunities.
• Flexibility: You can borrow as your project progresses, adjusting to changing costs without committing to a fixed amount upfront.
• Lower interest rates: HELOCs often offer interest rates that are lower than most unsecured loans.
• Tax benefits: If used for qualifying home improvements, interest paid on a HELOC may be tax-deductible, saving you money in the long run.

When cash might be the better option

While a HELOC is ideal for larger or more complex home improvements, there are cases where using savings makes sense.

• For smaller projects: If your home improvement project is manageable within your budget, using cash eliminates the need for loan applications and interest payments.
• If you have ample savings: Cash may be a viable option when you have a well-stocked emergency fund and the project won’t significantly reduce your reserves.
• To avoid debt: If avoiding debt is a priority, using savings allows you to fund the project without future financial obligations.

Pro Tip: How to decide between a HELOC or cash for home improvements

When trying to decide whether to use a HELOC or cash for home improvements, consider the following factors:

Assess the project size

For large or multi-phase projects, a HELOC offers flexibility and access to more substantial loan amounts.

For smaller, contained projects, cash may be sufficient.

Consider long-term goals

If maintaining liquidity is important, a HELOC lets you keep your savings intact while still funding your improvements.

Compare interest rates and investment returns

If the interest on a HELOC is lower than what you could earn from investing your savings, using home equity may be the smarter financial decision.

Evaluate your risk tolerance

If you’re comfortable with short-term debt to maintain long-term financial stability, a HELOC may be the better option.

HELOC or cash for home improvements: which one is right for you?

While using cash can help you avoid debt, a HELOC provides greater flexibility, lower interest rates, and allows you to keep your savings intact.

For larger or ongoing projects, a HELOC is often the better financial choice.

If you’re ready to explore how a HELOC can fund your home improvements, contact HomeEQ today to learn more about your options.

Your home equity. Your decision.

The money paid into your home can be a valuable asset for financing home improvements.

Find out if HomeEQ fits your needs with our simple, easy-to-navigate, fully digital HEOC application.

Get your decision in minutes and receive your funding in days.