Using a home equity loan for home upgrades may not be the best idea, expert says
Over two-thirds of US homeowners who are already deep in debt are still planning home renovations in the next five years.
The findings of a new research from Freedom Debt Relief found that 69% of the 1,028 homeowners surveyed wants to renovate their home. These homeowners carry at least $10,000 in unsecured debt.
However, 60% of those homeowners admitted that they could not afford the needed home upgrades. Overall, 73% of the respondents planning renovations said they would fully finance their home renovation project with a loan product.
Forty percent plan to tap into their house's equity through a home equity loan. Meanwhile, 38% said they'll use a credit card to fund all or part of their renovation, 32% would take out a personal loan, and 26% plan to use a home equity line of credit.
"The survey shows that homeowners who are carrying credit card and other types of debt – including student loan debt – in addition to their mortgage are more likely to finance their home renovations with a home equity loan, credit card or personal loan," said Michael Micheletti, director of corporate communications at Freedom Debt Relief.
Micheletti noted that these plans may push the total amount of homeowner debt even higher.
"Homeowners would be wise to save as much as possible and look at their overall financial position before taking on even more debt – debt that could disrupt their bigger financial picture," he said.
Twenty-six percent of homeowners intend to dish out over $25,000 on renovations in the next five years, while 25% plan to spend between $5,001 and $10,000.
The most popular renovation projects are flooring (56%), bathroom (53%), and kitchen (51%) renovations.
