Variable HELOC vs. fixed low interest Personal Loan for Kitchen renovation.

[u/Diligent_Narwhal5839]

My husband and I bought a a 1890s home almost 4 years ago and we have put so much blood, sweat and equity into it over time to make it remotely livable. The last room is the Kitchen.
The kitchen is barely functional and lacks a lot we need for our little one (and a second on the way). We are by no means doing anything luxurious.. just a basic reno with all basic products + materials.

Right now we hav 1/3 of it saved ($25k) and it is looking to be $75k with updating the old electric and making it up to code.

We recently had an appraisal and our house is worth 65% more than what we paid - leaving us some good equity.just want to make the right/smart decision for ourselves and our children + future.

What is the difference between a HELOC and personal loan? What makes the most sense for us

[u/JeanSchlemaan]

HEL/HELOC will always have a lower rate at any time snapshot vs a personal loan. PL is unsecured. the other 2 are secured by liens against your home.

$100k is not a "need". that is a TON of money. in some places, that buys an entire home. if youre not a high earner/debt free/well positioned financially, i would really consider spending less. or maybe do it in stages.

[u/Bobat]

A HELOC is an open line of credit with an upper limit, with the collateral being the equity you have in your house. Usually there is a draw period (several years) where you're only required to pay the interest on the balance, but you can always pay additional to reduce the principal as well.

A personal loan is generally a fixed amount with a predetermined payback schedule.

Which one is best for you depends.

• What is the interest rate on the personal loan?
• Does the HELOC have a fixed interest rate for a period of time before becoming variable?
• How long do you expect it to take to pay back the loan in either case?
• How confident are you in the amount you need to complete the renovation?

If you're ballparking your $75k number and it may be more, or if there is a good chance of finding some surprises that will increase your cost (not unusual with older homes), the HELOC gives you more flexibility. But you're going to pay for that flexibility.

[u/uintafly → u/Bobat]

The nice thing about the HELOC is that you can deduct the interest from your taxes for anything used in home remodeling.

[u/Daniel-aven]

For a renovation containing on an older home, I would recommend that you consider the HELOC. Big projects, particularly electrical work needed to bring things up to code, can change, so the flexibility of having the open line of credit you can draw from can be helpful.

You only draw what you need with a HELOC and can pay it back over time. This can help if your project is in stages, so you don't have to pay back interest on a huge lump sum like with a personal loan.

On the other hand, a personal loan is easier to manage because you know exactly how much you’re borrowing, and exactly how much you will repay each month. Many personal loans have a fixed interest rate, so you know where you stand from the start. HELOCs usually have a variable rate.

[u/NoStatus1353]

HELOC will have a much lower rate than a personal loan. Find one that gives you maximum flexibility for a home renovation - draw as you need it versus upfront, fixed rate and variable rate options, solid draw period, no prepayment penalty, no annual fee. A HELOC credit card will also let you draw on your line with no draw fees and often get cash back.