Steven Kruschke

By Dian Hymer

Most homeowners expect the value of their homes will increase when they spend money on remodeling. However, this is often not the case. The recent Cost vs. Value Report prepared by Remodeling magazine in conjunction with the National Association of Realtors makes this point abundantly clear.

The Cost vs. Value Report was based on a survey of more than 100,000 appraisers, real estate sales agents and brokers in 65 different markets around the country. The survey included information about construction costs and specifications for 29 mid- to high-range projects. Those who participated in the survey were asked to estimate the percent returned on resale for each project.

In general, the value of remodeling was down in 2007 compared to 2006. This was attributed to rising renovation costs and a slower rate of home-price appreciation.

Also revealed in the report is a trend toward renovation projects that improve the exterior of a home. Nationally, of those projects that paid back more than 80 percent of the cost on resale, only one -- a minor kitchen remodel that returned 83 percent -- was an interior renovation. It's noteworthy that since a minor kitchen remodel was added to the survey in 2004, it has consistently ranked amongst the highest-value projects.

Other high-returning exterior upgrades included: upscale siding using fiber-cement material; a wood deck addition; mid-range vinyl siding replacement; and mid-range to upscale window replacement. All of these improvements returned in the 81 to 88 percent range.

Nationally, the maximum percent returned on a renovation project was 88 percent. However, the Pacific region (Alaska, California, Hawaii, Oregon and Washington) bucked the trend with six projects paying back more than 100 percent of the amount spent for renovations. These included: a wood deck addition; a minor kitchen remodel; fiber-cement siding replacement; wood window replacement; and upscale wood and vinyl window replacement.

According to the Cost vs. Value Report, there is a wide range of payback on renovation projects to be expected from different regions. For example, a bathroom remodel recouped 69 percent nationally. In the Mid-Atlantic region the return was 60.7 percent, but it was 84.1 percent in the Pacific region.

HOUSE HUNTING TIP: Given current real estate market conditions and regional variability in the amount you can expect to recoup on a remodel, it's wise to know your local area well before embarking on a major project. Check costs with a local contractor and talk to a local agent whose opinion you trust before you start, particularly if you have resale in mind.

Just as it isn't wise to buy a home if you plan to move again soon, it's also not smart to do a major renovation unless you plan to stay put for awhile. The more you spend, the more money you could lose unless you own the property long enough to benefit from years of appreciation.

Homeowners who are planning to fix up their homes for sale in the near future can gain insight from the results of the Cost vs. Value Report. First impressions have always been an important element in selling homes. So, put some effort in improving the exterior appearance of your home and yard. If your home has limited outdoor living, adding a wood deck can overcome this deficiency.

It may seem ridiculous to improve the kitchen for someone else when you could never seem to find the time to fix it up for yourself. But, since minor kitchen remodels have such a high rate of return, it's a project well worth considering if your kitchen is dated.

THE CLOSING: It could make the difference between selling or not in the current challenging home-sale market.

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By Ilyce R. Glink

The economy is going through a rough patch, and the stock market is well below its all-time high. Mortgage rates have been dropping since the end of last year.

For homeowners, that can mean only one thing: It's time to think about refinancing your mortgage.

"If you can save on the interest you're paying, then it's time to do a mortgage refinance," explains Fred Glick, managing member of US Loans Mortgage LLC, a Philadelphia-based mortgage broker.

For some homeowners whose adjustable-rate mortgage (ARM) interest rates are rising, the low interest rates on 30- and 15-year fixed-rate mortgages offer an opportunity to refinance into something that's a known quantity.

"If you have a mortgage that's going to adjust, it's important to get into a fixed-rate program now," says Emma Butler, a certified mortgage planner with Mobium Mortgage Group, in Chicago.

In Freddie Mac's latest survey of mortgage rates, a 30-year fixed-rate mortgage averaged 5.72 percent with fees totaling 0.4 percent. A 15-year fixed-rate mortgage cost an average of 5.25 percent, plus 0.4 percent in fees.

A year ago, a 30-year mortgage cost an average of 6.3 percent, up more than a half percent, while the average 15-year mortgage cost 6.03 percent, nearly a full percentage point higher than what is available today.

Should you do a mortgage refinance now? Or, wait to see if interest rates drop further?


Conventional wisdom used to say that if you could shave 2 percentage points off of your interest rate, you should refinance your mortgage. But today, with zero-cost mortgage refinance options widely available, it may make sense to refinance if you can shave a half point off the interest rate you're now paying -- without lengthening the loan term.

"If you can save money by doing a mortgage refinance, you should do it. Some clients lately have saved $250 per month by refinancing," Butler notes.

But understand that with a zero-cost refinance, you won't get the very lowest interest rate for your mortgage.

"You can expect to pay an additional quarter percent in the interest rate if you want a zero-cost refinance," explains Dick Lepre, a senior loan consultant with Residential Pacific Mortgage, in San Francisco.

One problem some homeowners are having is that they had previously listed their properties for sale. Some lenders will not refinance a property that had been listed for sale within six months of the refinance. But other lenders will, Butler explains.

"Each lender has his or her own guidelines," Butler says. "Some will let you do a mortgage refinance if the property has been off the market for one day. It varies from lender to lender."

"We have three investors we work with who will do Fannie Mae loans even on properties [that] have been off MLS for one day. One of the three will not allow you to do a cash-out refinance, but the other two will," offers Lepre.


When should you do a mortgage refinance?

"Don't do it to go on vacation, buy shoes or go out to dinner. Do not mortgage your house for something like that," says Glick. "But if you're going to pay off your credit card and cut it up, or if you need to do it so you do not go into default on your loan, then absolutely you should refinance."

Glick believes you should never do a mortgage refinance just to get a tax deduction. "Don't refinance for tax purposes."

And finally, don't refinance to lower your payment but lengthen your loan -- unless you are facing possible foreclosure.

When you refinance, the goal should be to lower the amount of interest you're paying, either by lowering the interest rate or shortening your loan term, Glick adds.

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