Over One-Third of Homeowners are Paying for Renovations with Credit Cards

One in three homeowners used credit cards to pay for at least part of a home renovation project in 2017, according to a report from home design platform Houzz and financial services provider Synchrony.

Housing analysts are baffled by the trend, as Americans are sitting on the most home equity in history. Instead of tapping into what seems like an obvious resource, Americans are instead using credit cards, which typically come with high interest rates, to pay for their remodeling projects.

In 2017, some 36.4% of renovation spending was done with credit cards. In 2011, that figure was at 29.5%. Most survey respondents – 85% – said they paid for renovations using cash or savings. Just 15% of respondents said they used a secured home loan for their project.

The trend appears to be driven by millennials. Just over 40% of homeowners between the ages of 25 and 34 are used credit cards to pay for materials, basement contractors, plumbers and labor associated with their renovation projects. Only 30% of those over the age of 55 used credit cards.

Most young homeowners plan to pay the balances over time – 60-65%. Only 49% of those aged 55 and older plan to pay balances over time.

Homeowners who were renovating their homes spent a median of $10,000, and charged between $1,500 and $4,800 of that amount to credit cards. Only 5% of homeowners used credit cards for their entire remodel.

The two companies estimate that consumers used credit cards for $141 billion in home improvement products and services last year. That figure represents a 13% increase from 2016.

The trend is part of a larger trend in which consumers are spending more on their credit cards. In some cases, this can be a smart move.

Homeowners usually use their credit cards strategically. One in four said they rewards were their motivation for charging their purchases, and 58% said they were taking advantage of a no-interest promotion. For the remaining 44%, homeowners said credit was a low-cost option compared to other financing methods.

Traditionally, homeowners used HELOCs and other forms of home equity loans to fund home renovation projects they couldn’t pay for out-of-pocket. With home equity loans, homeowners can use the equity in their homes as collateral against the loan. Because these are secured loans, they come with lower interest rates. Typically, the home equity interest for the renovations will qualify as a deductible on taxes.

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