Home Equity Loans And Renovations Affected By The Mortgage Slump
During the previous housing boom, many homeowners made use of the opportunity for home renovations. This certainly seemed to make sense at the time since homes were flying off the market, loans were easily obtainable and interest rates were incredibly low. Many homeowners, therefore, realized that it would be the best time to make home renovations that would provide greater features such that if they then decided to sell, they would be in a better position to obtain such prices that would allow them to easily cover the renovation costs.
The renovation projects were generally financed with home equity loans, which are special loans that allow homeowners to obtain a second mortgage against their acquired home equity. With skyrocketing property values, homeowners were now overwhelmed by rapidly rising equity. Add that to low interest rates and it becomes ridiculously easy to acquire loans for thousands of dollars that can be used for home renovations. It was, in fact, no great difficulty for homeowners to borrow as much as $100,000, sometimes more, to fund a variety of home improvement projects.
Kitchen upgrades and renovations were particularly popular at that time. Granite countertops became quite the rage and every home that could be considered high-end, and even those borderline ones, were now upgrading to granite countertops. Viking produced high-end appliances also gained popularity. It was the general consensus among homeowners that the addition of this high-end feature would significantly increase the value of their homes.
Homeowners were often able to recover more than 80% of the renovation costs and in many areas they were even able to recover nearly 100%. Taking into account a few years of using these renovations, most homeowners found this to be a very good deal.
Nowadays, however, the end of the boom has left many homeowners with the realization that their renovations have become more costly than they could have imagined. The high volume of properties on the market now gives buyers so much of a choice that no longer become easily impressed by the same features which would have easily swayed them a few years back. As such, even the most upscale renovations are now recovering less 70% of the original cost. It is, therefore, certain that high-end renovation returns have made a rapid decline.
This provides current homeowners with critical advice as they consider home improvement projects in the current housing market: when planning home renovations, be sure not to overdo it, particularly if you are likely to sell in another three or four years, as you will most likely be unable to recover that money once you sell.
You must also consider that it is now no longer as easy to acquire home equity loans strictly for home improvement purposes as it was in the past. It seemed as though lenders were begging homeowners to take their money a few years prior. With the incredible low interest rates, homeowners felt they would be foolish not to borrow against their home equity. Now, however, defaults on home equity loans have begun to mirror the sharp increases of defaults in other mortgage industry areas. As such, creditors are now far more wary regarding home equity loans.