The Mortgage Slump Hits Home Renovations And Home Equity Loans - article by Interesting Articles For Your Reading Pleasure

The Mortgage Slump Hits Home Renovations and Home Equity Loans

In most cases, home-equity loans were used to finance these home improvement projects. A home-equity loan is a special type of loan which allows homeowners to take out a form of second mortgage on their home against the equity they have built up in their homes. Due to the fact that home values were skyrocketing in many areas, homeowners suddenly found themselves awash in rapidly rising equity. That, combined with low interest rates, made it quite easy to borrow thousands of dollars to put toward home renovations. In fact, many homeowners found no trouble at all in borrowing up to $100,000 or even more to fund various home improvement projects.

During this time kitchen renovations and upgrades wee particularly popular. Granite countertops became the standard for the day and all high-end homes and even those that bordered on the fringe of being high-end were suddenly being renovated with granite countertops. High-end appliances, especially those produced by Viking, also became quite popular. Homeowners speculated that adding such high-end features to their homes would raise the value even higher.

In many cases, homeowners were able to recoup at least 80% of the cost of those renovations. In other areas, it was not unheard of for homeowners to recoup almost 100% of the cost of the renovation. Taking into consideration a couple of years of use of the renovations and all together, most of these homeowners found it was quite a good deal.

Today; however, the boom has finally ended and many homeowners are finding that those home improvements are more expensive than they ever dared dream. There is suddenly so much inventory on the market from which buyers can choose; however, that they are no longer as impressed with such features as they once were. As a result, even upscale improvements and additions are now recouping less than 70% of their actual cost. There is no doubt that the return for higher-end renovations has certainly declined quite quickly.

This provides critical advice for homeowners who are thinking of renovating their homes in the current market. This message is that if you are planning to renovate your home, you should not go over the top; especially if you think you will be selling in the next three to four years. In most cases you simply will not be able to get the money back when you sell.

You should also take into consideration the fact that home-equity loans for the purpose of renovating homes are not easy to come by as they once were. Just a few years ago it almost seemed as if lenders were begging to give away money. Interest rates were so low, most homeowners felt as though they were being foolish if they did not borrow money against the equity in their homes. Like the rest of the mortgage industry; however, the default rate for home-equity loans has increased sharply. As a direct result, lenders are being far more cautious today about making home-equity loans.

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