4 Home Renovation Financing Options

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Choosing the right financing can make all the difference when improving your home.


Key points

  • Home renovations can be expensive.
  • There are several options for covering the costs of home renovations.
  • Saving for improvements is ideal, but you can also tap into your home equity or borrow using other types of loans.

If you’re upgrading your home, you’ll need to figure out how best to pay for the changes you make. The good news is that there are several different financing options you can consider.

There are pros and cons to each home improvement payment method, so be sure to carefully consider each of these four choices to decide which one is right for you.

1. Pay cash

If you are able to save money to pay for home improvements out of pocket without borrowing, this may be an attractive option. You will be able to avoid paying interest, so you will not add unnecessary additional costs. And since you’re not committing to a future monthly payment, your home improvement project won’t affect your finances for months or even years in the future.

There are, however, drawbacks. You could end up tying up a lot of money in your home that you could have used for other things, like investing. You may also have to wait a long time for upgrades if it takes months or years to save you the money you need.

2. Tapping into your home equity

Since you are improving your home, it may be a good idea to borrow against the equity in your property to do this.

You can do this by taking out a cash refinance loan, which means you get a brand new mortgage to pay off your old loan, but borrow extra money on top of what you currently owe. This could be a good choice if you can lower the interest rate on your existing home loan, as this option can sometimes save you money in the long run.

You can also take out a home equity loan or a line of credit, each of which allows you to borrow using your home as collateral without affecting your current mortgage.

The benefit of borrowing against your home equity is that you’ll generally end up with a lower interest rate than other types of debt, and you should be able to deduct the interest if you itemize your taxes since you’re using money to improve the property. There are downsides, however, including high closing costs and the fact that using your home as collateral for the loan puts you at risk of losing the property if you can’t make the payments and the lender forecloses.

3. Take out a personal loan

A personal loan is another good financing option for home renovations. Some of the big advantages of this type of loan over a home equity loan include the fact that approval should be quicker and easier and you can avoid paying high closing costs. You should also be able to get an unsecured loan, which means you won’t have to risk your home. The downside, however, is that your personal loan will likely have a higher interest rate than a home equity loan.

A personal loan also has advantages over another option: credit cards. You will have a fixed repayment period and generally a lower interest rate with a personal loan compared to credit cards. But you might not be able to take advantage of the unique benefits the cards can offer, like a 0% interest period or credit card rewards.

4. Use a credit card

Finally, a credit card is another option. Credit cards can be a quick and easy way to access cash, which is a huge plus. If you can qualify for a card with an introductory APR of 0% on purchases, you might even be able to borrow interest-free for around a year to 15 months, which can make home improvement financing cheaper. . And you could potentially earn points, miles or cash back for charges on your card.

The downside, however, is that you may not be able to secure a large enough line of credit to fund the improvements, and you could end up paying high interest if you don’t pay off the loan before the standard rate. from the menu. Your payment schedule can also be long and uncertain if you only make minimum payments.

Ultimately, each of these options is worth considering, and you’ll want to weigh the pros and cons of each before deciding which is right for you.

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