Consumers recognize the financial significance of their home and want to improve it, however, they appear to underestimate the costs involved and differ on preferred ways to pay for it. The findings are part of a new survey from Discover Home Equity Loans.
Nearly all consumers agree on their homes financial significance
82 percent of respondents agree that the home they own is a financial asset, with 47 percent saying the top reason they purchased their home was that it was a good investment, and 22 percent said that they wanted to start building equity.
Planning for home improvement projects
More than half, 52 percent, of respondents plan to make home improvements in the next year or sooner, with 25 percent planning a project within the next three months. Forty percent of people said they are planning a home improvement project to increase the value of their home.
Kitchen and bathroom remodels top the list of planned projects with 37 percent of respondents saying they are planning for each of those home improvements.
Consumers not clear on the cost and may not have saved enough
The survey found that 64 percent of respondents think that their home improvement project will cost under $15,000. According to Remodeling.net, bathroom remodels can cost between $19,000 and $61,000 while kitchen remodels can run up to double the price, with costs ranging from $63,000 to $125,000.1
When asked how much they have saved for their home improvement project, only 25 percent of respondents said they have enough funds to cover the entire cost of the project. Twenty-seven percent have only saved up to a quarter of the total home improvement cost, with these varying generationally: 27 percent of Millennials, 37 percent of Gen X and 24 percent of Boomer respondents.
Home improvement projects can quickly add up and oftentimes cost more than someone anticipates, said PK Parekh, senior vice president of Discover Home Equity Loans. Which is why people should be financially prepared and determine which payment method makes the most sense within their own financial situation.
Paying for a home improvement project
The survey found a variety of preferred methods for financing home improvement projects. Thirty-four percent of respondents say they would prefer to use cash for a home improvement project, followed by 23 percent saying they would use a credit card.
While forty-six percent of respondents had over $100,000 of equity in their home that they could tap into to finance a project only 38 percent said that they are planning to leverage that equity, whether through a home equity line of credit (18 percent), home equity loan (13 percent), or a cash-out refinance (seven percent). Millennials reported being the most open to loans on their home equity with 20 percent indicating this would be a good option for them.
There are a lot of benefits of using a home equity loan to complete a home improvement project, said Parekh. Discover offers a fixed rate loan with no application or origination fees. Also, you can use part of your loan to consolidate other existing debt, possibly reducing your interest rates and giving you just one monthly payment.
Discover Financial Services (NYSE: DFS) is a direct banking and payment services company with one of the most recognized brands in U.S. financial services. Since its inception in 1986, the company has become one of the largest card issuers in the United States. The company issues the Discover card, America’s cash rewards pioneer, and offers private student loans, personal loans, home equity loans, checking and savings accounts and certificates of deposit through its direct banking business. It operates the Discover Global Network, comprised of Discover Network, with millions of merchant and cash access locations; PULSE, one of the nation’s leading ATM/debit networks; and Diners Club International, a global payments network with acceptance around the world. For more information, visit www.discover.com/company.
The Discover Home Equity Loan Survey included 1,203 American homeowners age 21 and older and was conducted online by Research Now from September 26, 2018 through October 4, 2018. Survey data is weighted and is nationally-representative for age, gender and region. The margin of sampling error was +/-3 percentage points with a 95 percent level of confidence.
Sarah Grage Silberman