How to Use Your Mortgage to Fund Home Renovations
Thinking about upgrading your kitchen, adding a home office, or finally finishing that basement? Home renovations can boost both your comfort and your property's value—but they can also come with a hefty price tag. The good news? You may be able to tap into your mortgage to help cover the costs.
Here’s a guide to the most common mortgage-based options to finance your next big home improvement project: home equity loans, HELOCs, and cash-out refinancing.
1. Home Equity Loan
A home equity loan is essentially a second mortgage. It lets you borrow a lump sum against the equity in your home—meaning the difference between your home’s market value and what you still owe on your mortgage.
✅ Pros:
Fixed interest rates and monthly payments
Predictable repayment terms
Good for one-time, large renovations
⚠️ Cons:
You’ll be taking on additional debt
Must have enough equity built up (typically 15–20%)
Your home is used as collateral
2. Home Equity Line of Credit (HELOC)
A HELOC is a revolving line of credit that works like a credit card, secured by your home equity. You can draw from it as needed during the "draw period" (usually 5–10 years) and then repay it during the "repayment period."
✅ Pros:
Flexible access to funds—draw only what you need
Interest-only payments during the draw period
Ideal for ongoing or phased projects
⚠️ Cons:
Variable interest rates = less predictable payments
You need to be disciplined to avoid over-borrowing
Can be frozen or reduced by the lender in certain market conditions
3. Cash-Out Refinance
With a cash-out refinance, you replace your current mortgage with a new, larger one—and take the difference in cash. This can be a great way to leverage your home’s increased value for renovations.
✅ Pros:
Can offer lower interest rates compared to other types of loans
One mortgage = simplified payments
Useful for large-scale or value-adding upgrades
⚠️ Cons:
Closing costs can be high (just like any refinance)
Resets the clock on your mortgage term
Your monthly mortgage payment may increase
Choosing the Right Option for You
Financing OptionBest ForInterest Rate TypeFunds DisbursedHome Equity LoanOne-time, big projectsFixedLump sumHELOCOngoing or phased renovationsVariableAs neededCash-Out RefiMajor remodels or debt consolidationTypically fixedLump sum at closing
Your choice depends on your financial goals, how much equity you have, and how you plan to use the funds.
Final Thoughts
Home renovations don’t have to mean draining your savings. By using your mortgage strategically, you can fund improvements that enhance your living space—and potentially boost your home's value down the road.
Need help choosing the right financing option? Reach out to our team of mortgage specialists. We’ll walk you through your options and help you unlock the full potential of your home.