Low rates make this a good time to remodel

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Low rates make this a good time to remodel

With stock portfolios and interest rates down, it could be the right time to tackle that kitchen or bathroom renovation.

"Improvement yields a reasonable return for your money," said Doug Duncan, chief economist at the Mortgage Bankers Association in Washington. "It gives people the mind-set that they're improving on appreciated assets."

Home improvement can raise the value of your house in certain cases -- you just have to make sure not to overdo it. Realize that for every dollar you put into your home, you may not get the same amount back when you resell it.

For instance, if you have a one-bedroom house and the rest of the homes in your neighborhood have two bedrooms, then remodeling to add a bedroom can give you a sizable return. But adding several bedrooms may not reap as much, experts say.

And real estate is like any other investment -- the market can decline.

So far, this hasn't happened. The average home price has risen 28% to 2,300 in 2001 from 6,400 in 1996, according to the National Association of Home Builders in Washington, D.C.

Also, sales of new homes rose 0.4% in September to 1.02 million from the previous month, reflecting strong growth in the Northeast. Sales of existing homes rose 1.9% to 5.4 million in September.

Low interest rates are prompting homeowners to refinance mortgages and then borrow against their home equity to remodel, said Colin McGranahan, an analyst at Bernstein Research.

If you're planning on making home improvements, you should first figure out what type of project you'll be doing and then find a contractor you can trust.

One way to get leads on skilled remodeling professionals is through word-of-mouth referrals or by examining work that's already been completed.

"If you're going down the road and you see a project that looks good, then ask them who did it," said True Davis, founder of True T. Davis Building and Remodeling in Milford, Mass. "That's the best way. If the guy's a jerk, the customer will tell you."

Before hiring anyone, check to see whether your state requires the contractor to be licensed, and whether that person meets this requirement. Also, ask how many years the remodeler has been in business, check to see whether he or she has insurance, and see whether any complaints have been filed against that person with the Better Business Bureau.

It is a good idea to meet the contractor in advance, but avoid someone who pressures you or tells you that they'll do the job much cheaper if you sign right away.

Kevin McNulty, executive vice president and chief operating officer of National Association of the Remodeling Industry in Des Plaines, Ill., says, "If they're good enough, there's no reason for them to cut their pricing that much."

Once you've found a contractor, ask for a cost estimate. This will help determine whether you'll need to take out a loan and what type of loan to get.

A home-equity loan is a good idea if you know exactly how much you'll need and if you want to borrow the entire amount at once and pay it back later, usually at fixed interest rates.

But consider a home-equity line of credit if you have an ongoing project and you don't exactly know the cost over the long term. This will let you draw down on funds as you need them, without having to pay interest on money you don't need. The interest rate on this loan typically varies with the prime rate. The national average for a ,000 home-equity line of credit is now around 4.90%.