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Most Renovating Homeowners Not Tapping HELOCs

Phil Hall
Jul 10, 2019
Inventory problems related to construction costs will hamper the single-family housing market, even though the economy will continue to remain solid

Nearly half of homeowners are planning a property renovation in the next two years, but only one-quarter will finance it with a home equity line of credit (HELOC), according to new data from TD Bank.
In a survey of more than 1,800 homeowners, TD Bank found 48 percent of respondents were considering a renovation project by 2021, with one-third anticipating the cost to be more than $50,000. However, when it comes to paying for this project, most of the respondents anticipated paying through savings (48 percent) and checking accounts (34 percent), while only 25 percent cited a HELOC strategy. The lack of popularity for HELOC among the respondents could be attributed to ignorance: 23 percent said they could not define a HELOC and 32 percent did not know the current equity in their home, while 16 percent admitted they did not understand the impact of fixed versus variable rates on monthly payments.
"While there are many viable options for funding a renovation, a home equity line of credit is one of the most affordable ways to borrow," said Jon Giles, head of Home Equity Lending at TD Bank. "During a HELOC's 10-year draw period, it functions much like a credit card, whereby you can draw funds when you need them. But while credit cards typically carry interest rates around 17 percent, a well-positioned borrower seeking a HELOC can secure rates close to the Federal Reserve's prime rate, which is currently around 5.5 percent. This also provides flexibility, as most homeowners won't want to draw on cash reserves or savings when unexpected expenses arise."

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