Home Economics: Renovate Carefully

Home Equity Line Of Credit, Home Loans, Retirement

May 24, 2018

Americans are on a home renovation binge. The remodeling experts at Harvard’s Joint Center for Housing Studies estimates that we will spend more than $350 billion on remodeling in the next 12 months, an increase of more than 7 percent.

Rising home values are increasing owner’s confidence that spending on improvements will be a good investment. Meanwhile, the low inventory of homes for sale makes it hard for families to trade-up; remodeling the home you own can be the practical “move” when making a real move isn’t feasible in your area.

This is where my mantra of “Live Within Your Means, But Below Your Needs” can be so very important to your financial security.

• Is it a Need or a Want? If you are planning a major project, I hope you ask yourself this question. You need to replace the aged roof. You want to renovate the dated bathroom. No one who has credit card debt, lacks an eight-month emergency fund or isn’t on pace with retirement savings should spend money on home renovation wants.

• Be Wary of Home Equity Lines of Credit. If you intend to borrow money to finance a big renovation project, a HELOC can be a risky choice. Most HELOCs have a variable interest rate that changes along with general rate changes in our economy. We are now in a period where interest rates are beginning to rise. I anticipate this will continue. That means money you tap in a HELOC can cost you more over time. If you think you will need more than a year or two to pay back this money, I recommend you consider a Home Equity Loan instead of a HELOC. The interest rate on a home equity loan is fixed, meaning it will not change. The interest rate on a home equity loan will be higher than the initial rate on a HELOC. That’s okay. I want you to focus not on what you pay right now but protecting yourself from the risk of the HELOC payments rising in the future.

• Think of Your 75-Year Old Self. If you live in a home you intend to retire in, keep your older self in mind as you plan a major renovation. A bed and bathroom on the first floor. A bathroom with a wider doorway and interior space that can easily accommodate a walker. More and better lighting. There are many online resources for small and big home renovation projects that can help you “age in place.”

Resources & Tools You Need:

Suze Recommends

Saving, Student Loans, Retirement

How to Avoid This College Mistake That Can Hurt the Entire Family

Read Now


Are You Saving or Spending This Summer?

Read Now

Investing, Retirement, Family & Estate Planning

Podcast Episode - Ask Suze & KT Anything: Mortgages, Annuities, Rollovers and Trusts

Read Now