Sponsored Content: In a housing market with high demand but low supply, homeowners have turned to home improvement to make their space more comfortable.
According to a recent survey conducted by Discover® Home Loans, even though 59% of respondents have chosen to postpone their home improvement projects due to rising inflation and increased costs, 79% of homeowners still would rather renovate their current home than move to a different one.
What Kind of Renovations Are Homeowners Making?
Just five years ago, a typical home renovation might have been a kitchen or bathroom remodel. Classically, investing in these two areas offered the greatest increase in a home’s resale value.
But during the COVID pandemic, renovation priorities changed. With whole families at home all day to work remotely or go to school online, families focused on projects that would make their home more functional or livable. This included:
1. Converting rooms or spaces into home offices or classrooms
2. Adding extra bedrooms
3. Finishing the basement to provide extra living space
4. Changing surfaces for easier sanitation
5. Adding air filtration systems
6. Adding outside entertaining areas such as a patio and deck
As home prices soared and loan rates plummeted during the pandemic, people turned their sights inward to invest in what they already owned.
This sentiment continues into 2023 even with interest rates rising and forecasts for housing market looking more and more uncertain. However, a new addition to this list includes an increased interest in making “green” or eco-friendly improvements with 59% of homeowners in the same survey saying they planned on undertaking projects like this in the near future.
Where are People Getting Their Home Renovation Money?
For homeowners, a major source of available funds has been home equity. Whether owners were looking at a cash out refinance or a home equity loan from Discover or another lender, the low, fixed interest rates on these options offer great ways to tap home equity.
As home values increase, homeowners earn equity and the opportunity to fund renovation projects using that equity.
How to Use Home Equity for a Renovation
There are several ways a homeowner can tap into the equity in their homes to use for improvements.
Home Equity Loans
Also called a “second mortgage”, this is where a lender will give a lump sum loan to the borrower. Loans are typically paid back over 10 to 30 years with a fixed interest rate.
A HELOC is a home equity line of credit. A lender will convert the owner’s equity into a credit line that can be used as needed. Interest rates are variable and accrue once a balance begins to carry forward.
Cash-Out Mortgage Refinance
With a cash out refinance, a homeowner trades their current mortgage for a larger one. The homeowner pockets the difference between the two to use as they like. Meanwhile, the total debt (the cash out amount plus the balance owed on the house) is rolled into a single new mortgage payment.
When Should You Tap into Home Equity?
Home equity can be a useful tool for financing home renovations. However, home equity loans, HELOCs, and cash-out refinances all come with their own pros and cons. Weigh the benefits of each option before deciding which is best for you.
About the Survey
The national survey of 1,500 homeowners was commissioned by Discover and conducted by Dynata (formerly Research Now/SSI), an independent survey research firm. The surveys were conducted online; the first was fielded from January 19th through January 29th, 2023. The maximum margin of sampling error was +/- 2% with a 95% level of confidence. ?
Please note: Discover Home Loans offers mortgage refinance and home equity loan products, but does not offer HELOCs.
About Discover Home Loans
Discover Home Loans provides home equity loans and mortgage refinance options with a range of benefits for qualified homeowners. Find options that fit within your budget at discover.com/home-loans. © 2023 Discover Bank, Member FDIC | NMLS ID 684042