As a homeowner, you're in an ideal position to use the growing equity in your home to finance home improvement projects. Whether you choose a home equity loan or a line may depend on one of the following factors:

• If you need money for a large home improvement project, a home equity loan allows you to pay off a larger loan over a longer term. With a loan, you get a fully amortized loan, secured by a mortgage or deed of trust in second position on the title of your home. This type of loan is usually paid to you as one lump sum.
   
• If you intend borrow relatively small, variable amounts and pay back the principal quickly, a home equity line of credit can cost less than a home equity loan. A home equity line of credit is usually based on a variable rate, and offers you the ability to draw money for making improvements only as you need it.

Improving your home with equity: a few tips

Home improvements can help accelerate the value of your home or get your home ready to sell. Whatever the reason, a Home Equity Line of Credit or Home Equity Loan can give you the flexibility to make the improvements you need, without tapping into cash that you may want to set aside for other purposes.

Here are more tips to consider when you plan to improve your home:

• Unless you use a home equity loan to refinance your existing first mortgage loan, there is no change in the terms of your existing first mortgage loan when you take out a home equity loan. Typical loan terms range from 5 to 30 years. Any existing second mortgage loan, however, must be paid off with the new home equity loan.
   
• If you make home improvements with the specific intent of increasing the resale value of your property (as opposed to just making it more comfortable to live in), make sure the renovation will add the value you want. For example, a kitchen renovation might recover the money spent and more, whereas adding a pool might not.
   
• Before deciding on a final loan amount, complete a cost breakdown that itemizes the estimated cost of your home improvement. Include items needed such as building materials (lumber, concrete, etc.), labor, decorating (paints, tile, etc.) and a contingency amount for possible unplanned expenses.
   
• A home equity loan can provide a tax-deductible way for improving your home to look the way you really want it to, while increasing the value. Note, however, that you should always consult a tax advisor regarding the deductibility of interest. There are typically no restrictions for home improvement, as long as they are within the boundaries of local building requirements. You have the choice of doing the improvement work yourself, or using a contractor.