Money Smarts Blog

It's a tough choice for a homeowner: Move into a new house, or improve the one you have. It seems so easy to call a realtor and arrange a showing. But your current home has something no new home can offer--equity.

On average, homeowners spend 18 months planning home improvements. It's time well spent; some renovations pay off better than others. Bathroom and kitchen renovations provide the greatest return, between 90% and 95%. Decks and home offices hold the low end, between 65% and 70%.

As you plan, look beyond your house to your neighborhood. Will renovations put you in a different league--and price range--than your neighbors? Also, keep in mind how long you'll be in your house. If you're going to fix it up and sell in six months, you'll get all the pain of remodeling and not much gain. But if you plan to live in the house more than three years, it makes economic sense to remodel.

How do you calculate your available equity?

First step: Say you made a down payment of $20,000 on a house priced at $100,000 five years ago. Since then, you've paid $15,000 toward the principal, and the market value of your house has increased to $115,000. The sum of your down payment ($20,000), principal paid ($15,000), and the increase in property value ($15,000) gives you $50,000 in equity.

Second step: Ideally, what you owe on your home--mortgage plus home equity loan--shouldn't exceed 80% of your home's value. So 80% of $115,000 suggests, if you meet other lending yardsticks, you may be eligible for as much as a $27,000 home equity loan (house is worth $115,000; 80% of that is $92,000; you still owe $65,000 on the first mortgage; so $92,000 - $65,000 = $27,000).

Ready to get started? Learn more on our Home Equity products, or stop by any branch.