Garden building

How to use a HELOC for large home improvements

If you’re looking to pay for extensive home renovations, whether that’s a loft conversion, an extension, or a complete remodel of your home, you’ll probably be considering borrowing funds to help cover the cost. 

This guide looks at how you could use a home equity line of credit, or HELOC, to help pay for large home renovations and why it could be a better alternative to more traditional options. 

How to get a £100k home improvement loan 

If you are planning a major home improvement project, you could be expecting to spend upwards of £100,000. Getting a loan of this size won’t always be straightforward and, because lenders tend to view larger loans as higher risk, you’ll usually need to secure the loan against your property. This means that in the event you cannot repay your loan, the lender has the right to repossess your property to get its money back. 

The two main options available to homeowners have traditionally been applying for a standard secured loan or remortgaging to access some of the equity in their property. 

However, a third option to consider is a home equity line of credit. HELOCs are commonly used by homeowners in the US, Canada and Australia, but Selina Advance is the first provider to offer a HELOC to homeowners in the UK.

Using a HELOC to pay for home improvements

The problem with using a secured loan or remortgaging to pay for home improvements is that you’ll have to borrow a fixed lump sum. This means you will need to have a good idea of how much your renovations are going to cost before you apply. If your home improvements end up going over budget, you’ll need to find another way to borrow the additional funds. 

A HELOC, on the other hand, is a much more flexible option. It works by letting you borrow against the equity that you’ve built up in your home and you then receive your funds as a line of credit. You can draw as and when required up to your credit limit over a period of 5 years.

This has the advantage that should your home renovations cost more than originally anticipated, you can simply draw the additional funds from your HELOC. Alternatively, if the renovations cost less than expected, you won’t pay interest on the amount left untouched. 

At Selina Advance, you can borrow a minimum of £10k and a maximum of £250k, making it ideal for large home renovations.  

How do I repay a HELOC?

At Selina Advance, you’ll have a 5 year ‘flexible’ period in which you can draw on your funds, repay them and then redraw. The total amount withdrawn, including interest, must then be repaid during the repayment term, ranging from 5 to 30 years. Monthly repayments will adjust to your outstanding balance. Paying over a longer term can be particularly useful if you’re borrowing a large sum of money as it will help to keep your monthly payments down. 

The downside of paying over a longer term is you’ll pay more interest overall. However, the advantage of using a HELOC is that if you later find you can afford to pay off more each month or if you can repay your loan in part or in full earlier than planned, you can do so without paying any early repayment charges, thus potentially lowering your monthly repayments.

Who qualifies for a HELOC?

As with any financial product, you will need to meet the lender’s criteria to be eligible for a HELOC. With Selina Advance, you must at least meet the following criteria:

  • Be a homeowner and be on the title deeds of the property 
  • Be a UK resident with at least three years of address history
  • Have a good credit history.

Keep in mind that a one-off product fee of £1,395 will apply.

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Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.