Why it’s a Good Idea to Put a Home Equity Line of Credit Towards Home Remodeling

By Brad Hunter

Updated October 11, 2017

Water pouring into rain barrel.

13 is usually an unlucky number. But what about $13.7 trillion?

That’s the total amount of home equity in the country (as of the first quarter of 2017), according to recent data from Freddie Mac. That’s double than what it was five years ago – and it’s predicted to increase even more as we move into the new year.

With such a considerable rise in home values, many homeowners – baby boomers especially – are realizing that they suddenly have a good amount of equity in their home; a home that is oftentimes in need of remodeling.

Those homeowners are now faced with a decision: Do they “pull out” some of that money, via a cash-out refinance or a home equity line of credit? And if so, how can that capital give them the best return on investment? The answer might be right under their own roof.

Here are three reasons why a home equity line of credit is put to good use when its being put back into the home.

1. It increases the value of the homeowner’s largest asset

Both a home equity line of credit and a cash-out refinance can put a lot of cash in the hands of a homeowner. And if that money is invested back into the home, the total payout could be even greater.

Even home improvement projects that are only likely to yield half of their cost at resale can be worthwhile, if the project adds to the homeowner’s happiness.

Using Hanley Wood’s Cost vs. Value Report, HomeAdvisor says these remodeling projects can yield some of the highest return on investment when it comes time to sell:

  • Landscape and Curb Appeal – A good first impression of a home can add 5% to its value. That includes exterior painting, a properly paved driveway and of course, landscaping.
  • Build a Deck – Homeowners who add a deck will likely be able to recoup more than 80% of its cost at time of sale.
  • Finish your basement – A basement space can easily be turned into a playroom, bar, media room, or even and extra bedroom for homeowners to rent out.

Full kitchen remodel in progress.

2. It gives homeowners the opportunity to make lifestyle upgrades

Increased equity can empower homeowners to invest more dollars per home-improvement project than they’ve been able to in the past. That means homeowners can take on more discretionary upgrades – moving from what has to be done to keep up the property, to lifestyle home projects that homeowners want to have.

Instead of just patching a leaky roof, a home equity line of credit gives homeowners the opportunity to replace and remodel the entire thing. But not just that – tapping into equity allows homeowners to indulge in true “lifestyle” improvements, like kitchen remodels and outdoor entertainment areas.

Leading this charge are the many baby boomers already sitting on a good amount of homeowner equity. Baby Boomer homeowners account for more than 50% of all home improvement spending in the country — partly because of their wealth, partly because of their equity – and partly because they are now able to take on costly projects they’ve have to put off during the recession.

Taking this into consideration, it’s no surprise that some of the most popular home improvement projects across the country are also some of the most expensive.

3. It helps homeowners avoid slugging it out in “bidding wars” for new homes.

The sinister side of the runup in home values (a side-effect of a small number of homes for sale as well as under-production), is that homeowners looking to move are having a harder time finding the right home to buy. This trend is causing more and more people to stay in the home they already have, and improve it – or rather – invest in it.

If a homeowner is looking to a new home for updated features or more space, a decent amount of already existing equity creates the opportunity to add these improvements to their current residence, eliminating the hassle of house hunting and the stress of bidding wars.

No matter what, the best home remodeling projects are always the ones that add to personal happiness. And if a home equity line of credit can help add to the resale value of your home, give you a lifestyle boost and help you avoid the headaches of moving, it’s a win-win.

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