Home Renovation Loans

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Do you want to add in a few skylights or a fireplace to your home? Or maybe you're looking towards larger renovation projects, such as a kitchen remodel, room addition, or a roof replacement. You might have big home improvement plans, but you also need to have a plan on how to pay for it all. If you don’t already have enough savings to pay for your home improvement project, you can finance your project through home renovation loans.

What are home renovation loans?

Just as there are numerous types of renovation projects for you to consider, there are also multiple renovation loan sources that you can choose from to finance your home renovation. There are five types of home improvement loans: a home equity line of credit (HELOC), a home equity loan, mortgage refinance, personal loans, and credit cards. You can use one or a combination of these loans to finance your project, such as using your credit card while you wait for your HELOC application to be approved.

Types of Home Improvement Loans

Home improvement loan infographic

Home Equity Loan

A home equity loan is a secured loan for a fixed amount of money that you borrow based on your home equity. Home equity loans allow you to borrow a large amount of money at a low interest rate, which makes them great for large home improvement projects that require a substantial upfront payment. However, home equity loans require you to have home equity to borrow against. If you don’t have at least 20% home equity, you won’t be able to borrow through a home equity loan.

Home Equity Line of Credit (HELOC)

A HELOC is similar to a home equity loan in that you’re borrowing based on your home equity, but instead of borrowing a fixed amount of money, you are given a credit limit instead. You can borrow as much or as little as you need at any time up until you reach your credit limit, and you will only pay interest for the amount that you borrow. Coupled with low HELOC rates, the flexibility of HELOCs make them a great choice for on-going projects that have costs spread out over a period of time. This allows you to only borrow money when you need it. Just like a home equity loan, you’ll need to have at least 20% home equity to borrow with a HELOC if you have a mortgage, or at least 35% home equity for standalone HELOCs.

Mortgage Refinance

A cash-out mortgage refinance involves you replacing your current mortgage with a new mortgage that has a higher mortgage balance. The difference between your new and old mortgage balance is the amount that you are borrowing. You will be able to use this amount to pay for your home renovations.

Depending on when you refinance your mortgage, you may or may not be charged penalties or fees. If you refinance during your term, your mortgage lender will charge mortgage prepayment penalties for breaking your mortgage. You can avoid break penalties if you refinance at the end of your mortgage term when it is up for renewal. If you refinance with another lender, you will also be charged a discharge fee by your current lender.

A refinance lets you borrow at low mortgage refinance rates, though you will also be limited to a maximum refinanced mortgage of 80% of your home’s value.

Personal Loans

Personal loans have an easier and quicker application process compared to refinancing your mortgage or getting a HELOC. This is best for those who need to pay renovation expenses relatively soon, but don't have enough equity in their home to get a secured loan.

Since personal loans are unsecured, they will have an interest rate that is higher than secured loans. The rate can also be significantly higher depending on your financial situation, such as if you have a poor credit score or low income.

Credit Cards

Borrowing from a credit card isn't ideal if you aren't able to pay it back quickly, with credit cards having very high interest rates. If your home improvement project is small, such as it costing only a few thousand dollars, a credit card might be an option for you to easily finance your project for a short period of time. If you can’t pay it back soon and will need to pay your loan off over a longer period of time, using a credit card to finance home renovations wouldn’t be such a good idea.

Home Renovation Loans by Interest Rate

Funding SourceInterest Rate
Mortgage Refinance2.5%+
Home Equity Line of Credit (HELOC)3%+
Home Equity Loan4%+
Personal Line of Credit5%+
Personal Loan6%+
Credit Cards19.99%+
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