Nearly half of homeowners (48%) plan to renovate their homes in the next two years, and a third of those homeowners expect to spend more than $50,000 on their renovations, according to recent research from TD Bank.

Adobe Stock/stevecuk

The findings reveal that while many homeowners are dipping into their savings (48%) and checking accounts (34%) to fund renovations, many are establishing substantial budgets and seeking financing options. A quarter (25%) say they will borrow through a home equity line of credit (HELOC), and a similar portion will utilize a personal credit card (24%) or a personal loan (18%).

"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%, a well-positioned borrower seeking a HELOC can secure rates close to the Federal Reserve's prime rate, which is currently around 5.5%. This also provides flexibility, as most homeowners won't want to draw on cash reserves or savings when unexpected expenses arise."

As of late 2018, the average U.S. mortgage holder had more than $113,000 in equity in their home, which is calculated by subtracting their mortgage balance from the current, appraised value of their home. Yet much of that equity remains untapped. Just a third (36%) of survey respondents said they have had a home equity loan or HELOC.

"We've found that many homeowners simply aren't aware of how they can leverage the equity in their homes," said Giles. "Home equity financing is ideal for projects that will add value to one's home, such as a renovation. It's also frequently tapped to consolidate higher interest rate debt, or to help with education expenses. At TD, we are working to increase awareness and education so that more homeowners can take advantage of their home equity when they need it."

The survey uncovered several gaps in understanding home equity:

  • Nearly a quarter (23%) of homeowners said they could not define a HELOC.
  • Almost a third (32%) of homeowners did not know the current equity in their home.
  • One in six (16%) homeowners did not understand the impact of fixed versus variable rates on monthly payments.

While a desire to undertake home renovations spanned all audience segments, key generational differences were observed in respondents' priorities and strategies for renovating. More than half (54%) of baby boomers – those over age 55 – said appearance/quality of the final product was their top renovation priority, while 18-34 year-olds were more likely to prioritize cost first (43%). 27% of the youngest respondents indicated the speed of the renovation was their first priority, compared to zero boomers.

When it comes to tackling the renovations, 64% of respondents in the 18 to 34 age group said they would do some or all of the work themselves, indicating they are likely looking to save on labor costs. Meanwhile, 60% of boomers said they would hire professionals to carry out all of the work.

Across the board, homeowners said they are planning to renovate their bathroom (26%) and their kitchen (25%) more than any other area of their home. Nearly half (48%) said improving the quality of their outdoor space was a top reason to renovate.

TD Bank's Home Equity Trend Watch is a national survey of more than 1,800 homeowners which examines trends in home equity usage and home renovations. The study was conducted by research company Maru/Matchbox. Respondents were composed of a nationally representative sample of 1,801 American homeowners, with a margin of error of +/- 2.3%. The survey was fielded from April 2nd to 17th, 2019.