Should you refinance for home improvement projects?

Homeowners often take on improvement projects to modernize or expand their space—updates that can boost value through added square footage, renovated kitchens and bathrooms, or upgraded systems.

Because paying out of pocket isn’t realistic for most, many tap into their home equity to fund renovation costs. Here’s how refinancing for home improvements works, what to consider before applying, and other financing options to explore.

How does a refinance for home improvements work?

When you refinance a mortgage for home improvements, you replace your existing mortgage with a new, larger loan. The new loan will have a larger balance based on the amount of cash you pull out to pay for the repairs, addition, or other home improvement projects.

By replacing your existing mortgage, you’ll lose out on its current interest rate, and the payoff date is reset. Depending on when you took out your mortgage, today’s interest rates could be the same, lower, or much higher than your existing rate. Take this into consideration when evaluating whether a cash-out refinance for home improvements makes sense over other loan options.

While mortgage terms are typically 30 years, some homeowners choose a shorter term to stay closer to their original payoff date.

Considerations before refinancing for home improvements

Before a cash-out refinance for home improvement projects, there are a few key factors to understand—what lenders look for and the costs involved:

• Eligibility. Homeowners may qualify if they have adequate equity and income to support payments. Criteria vary by lender and loan type (including loan-to-value and debt-to-income limits), so it’s worth shopping around for the best rates, fees, and programs.
• Appraisal. Lenders use third-party appraisers to value your home based on market trends, recent sales, and features. This can be a desktop, drive-by, or full appraisal. The average cost is around $358, but it varies.
• Rates & terms. Interest rates depend on credit score, income, loan type, and LTV. If your current rate is much lower than today’s, refinancing may not make sense. While 30-year terms are common, shorter terms are an option if you can handle higher payments.
• Closing costs and fees. Closing costs typically range from 2% to 6% of the new loan amount. Some homeowners offset these by accepting a higher rate or rolling costs into the loan.

When it makes sense to remortgage for home improvements

Remortgaging for home improvements and repairs can make sense when:

• You’ve built enough equity to borrow against your home.
• You can secure a lower interest rate than other financing options.
• You’re planning projects that increase your home value (like a kitchen remodel, addition, or major system upgrades).
• You want to spread costs over time with more manageable monthly payments.
• Refinancing could improve your overall loan terms (like lowering your payment or consolidating higher-interest debt).

Just keep in mind the upfront closing costs and longer repayment timeline, and weigh whether the long-term savings outweigh the initial expense.

Alternatives

Refinancing means you'll lose your existing rate and payoff date, which is not ideal for everyone. If this is the case, consider alternative ways to access the equity in your home or other consumer products.

HELOC

A home equity line of credit (HELOC) is a flexible financing option that has a maximum credit limit based on your home’s value, existing mortgage balance, and the lender’s maximum loan-to-value (LTV) ratio. You can borrow as needed during the draw period (typically 10 years), which usually comes with a variable interest rate, so payments can change over time. After the draw period ends, the remaining balance enters the repayment period, where it’s paid back as a fully amortizing loan.

Home equity loan

A home equity loan also taps into your home equity, but you receive a lump sum upfront, and the interest rate and monthly payments are fixed throughout the loan term. Borrowers can choose their repayment term with typical options ranging from five to 20 years. If you need extra money, you’ll need to apply for another home equity loan.

Home equity investment

Another home equity option is a home equity investment (HEI). Homeowners receive a lump sum of cash of up to $600,000, based on how much equity they have. There are no monthly payments during the 30-year loan term. Instead, you'll share a percentage of the appreciation of your home’s value anytime during a flexible 30-year term. HEIs are ideal for homeowners with less-than-perfect credit or hard-to-prove income.

FHA 203(k) home renovation loans

If the types of renovations your home needs include major structural repairs, an FHA 203(k) renovation loan may be your only option. These home renovation loans provide the funds necessary to repair or renovate homes by a licensed contractor, and then convert into a long-term mortgage. Borrowers can use the money to buy or refinance a property of one to four units, as long as it will be their primary residence.

Personal loan

A home improvement or personal loan offers a lump sum of cash upfront that is paid back over time. These loans typically don’t require collateral, but their interest rates tend to be higher than a cash out refinance. Approval is primarily based on your credit score and income, but secured personal loans also use collateral like a CD, investments, or a vehicle to back loan repayment.

The loan process at traditional banks may take a week or more to fund, but some online lenders can fund as soon as the same business day. Personal loans offer fixed interest rates and a set monthly payment. Repayment terms typically range from one to five years, but some lenders offer longer repayment plans to keep minimum payments affordable.

Credit card

For smaller home improvement projects, a credit card can be a quick, easy way to pay—and may earn cash back or rewards. Many retailers and some contractors accept cards, though fees may apply.

Opening a new card can also offer value, like intro 0% APR periods (sometimes up to two years) and welcome bonuses, helping reduce interest or earn rewards on your spending.

Grants

Many homeowners prefer to avoid refinancing or taking on new debt. With home improvement and repair grants from community organizations, the government, and private companies, you may get funding you don’t have to repay. Potential sources include local public housing agencies or the USDA Rural Development website.

Eligibility varies, but many programs focus on efficiency upgrades or support seniors and low-income homeowners. Some are state-specific, while others are nationwide. To qualify, you’ll typically need proof of ownership, income documentation, and a project estimate (and proof of age for senior programs).