Zero-interest home improvement loans 101: Everything you need to know

Zero-interest home improvement loans 101: Everything you need to know

Getting a much-anticipated home improvement done can be a very satisfying part of homeownership. Zero-interest home improvement loans can be a great solution if you qualify. This article will dive into how to find these financing options and how they work.

Lindsay VanSomeren
May 8, 2023
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Imagine transforming your home — upgrading your kitchen or adding that dreamy backyard oasis — without worrying about high-interest rates. Getting a much-needed or much-anticipated home improvement done can be a very satisfying part of homeownership. Still, the costs are often very high — and back of mind when deciding to leap into home upgrades or repairs. For example, you can expect to pay nearly $30,000 to replace the average roof or $17,000 to add on a new wooden deck. Naturally, borrowing money for upgrades and repairs with home project loans is possible, but that, too, is often expensive. 

A low-interest home renovation loan can be a great solution if you qualify. In some cases, you may even be eligible for zero-interest home improvement loans. We’ll help you understand how to find these tricky home repair financing options and how they work so you can move on with your project. 

What are zero-interest home improvement loans?

A zero-interest home improvement loan is a type of funding that gives you money to complete home renovations and repairs. Unlike most loans, a zero-interest loan won’t charge you any interest at all, as long as you meet the terms of your contract. 

Since interest is generally how for-profit lenders make money, most interest-free home improvement loans are instead offered through non-profit organizations, and different state and local government departments. These groups have a mandate to help people in need rather than earn income through interest. 

That’s also why most zero-interest home improvement loans are only available to people who meet certain requirements and aren’t as widespread as traditional home remodeling loans. 

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How do zero-interest home improvement loans work?

If you’re familiar with mortgages, you know that they’re available from a lot of different lenders, yet they’re all quite similar. There may be small variations, but a mortgage from Lender A works basically the same as from Lender B. Zero-interest home improvement loans, on the other hand, work very differently. 

Most zero-interest home improvement loans are available through homeowner assistance programs from local non-profit and government groups rather than lenders. Each organization is free to develop its own rules and requirements, which can be very different from place to place. These low-cost loans for home improvement could come with different:

  • Fees
  • Term lengths
  • Interest rates
  • Loan amounts
  • Borrower requirements

The last part is particularly important. Most zero-interest home improvement loans are only available to certain people. This type of housing assistance is generally more commonly available to people meeting these requirements:

  • Seniors
  • Low-income folks
  • People with poor credit
  • Residents of certain areas
  • Homes under a certain value
  • Homeowners with equity in their home
  • Homeowners who are current on property taxes

Finally, if you do qualify for grants, zero-interest loans, or low-interest home improvement loans in your area, it may come with restrictions. Common restrictions often include things like:

  • Work may need to be inspected by a department official
  • Work may need to be completed within a certain timeframe
  • Funds may only be used for necessary repairs to bring a home back up to code
  • You may need to repay any grant funds if you sell the home within a certain time frame
  • Improvements for non-necessary things like hot tubs and garden landscaping may not be allowed

There is no national database of low-cost loans for home improvement, so you’ll need to do some work in finding these options, if available, in your local area. These organizations will tell you whether you’re eligible, how to apply, and any program requirements. If you’re having trouble locating resources, try calling 211 or visiting 211.org for personal assistance. Otherwise, here is a good start for where to find home repair assistance like zero-interest home improvement loans:

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Advantages of zero-interest home improvement loans

The main advantages of a zero-interest home improvement loan are that it’s usually much easier to get for people who may not otherwise qualify for help and very affordable too. 

Not having to pay interest saves you a lot of money in the long run. If you took out a $10,000, five-year loan with a 12% interest rate, for example, you’d end up paying about $3,350 in interest alone by the time you paid it off — nearly a third of your entire loan. If you’re able to use a zero-interest home improvement loan, on the other hand, you wouldn’t have to pay that cost.

Check out this loan calculator to understand the true costs of a loan.

Since none of your money will go towards interest, you’ll also likely pay off the debt faster because 100% of your payments will go toward paying down the principal balance.

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Considerations before applying for a zero-interest home improvement loan

The main disadvantage of zero-interest home improvement loans is their lack of availability. It’s not something that most people will qualify for since it’s usually reserved for homeowners needing a little extra assistance. They’re also harder to find even where they are available.

Zero-interest home improvement loans can also be confusing because the rules vary greatly. It’s a good idea to take things slow. Sit down and read the contract thoroughly, and ask any questions you might have before you sign up. Make sure you understand the program rules and requirements well enough that you could describe them to someone else who might need that help too.  

Examples of zero-interest home improvement loan programs

The City of Seattle offers a Home Repair program offering grants of up to $10,000, or loans ranging from $3,000 to $40,000, for residents within city limits to fix “ immediate health, safety and structural deficiencies.” You’ll need to be under certain income thresholds to qualify, based on how many people are in your household. 

Seattle residents and those in the broader metropolitan area can also benefit from the King County loans program, if they’re under certain income limits depending on family size. For example, you may qualify for a loan of up to $25,000 to repair your home with no monthly payments. Instead, the loan funds will be due in full when you refinance or move out of the house, such as when you sell it. 

This approach works similarly to partnering with Point in a Home Equity Investment (HEI) agreement. although Point’s HEI is not a loan, it may be more broadly available. 

Alternative options to consider

The truth is that while they can be excellent resources, zero-interest home loans aren’t available for most people. If you’ve ruled these out as an option for you, here are some other home improvement funding options:

  • Personal loan: One of the most common financing options for home improvement, these loans are usually unsecured and feature steady fixed-rate payments.
  • Home equity loan: These loans are backed by the collateral in your home and offer more competitive rates than personal loans and credit cards.  To qualify, a homeowner needs to own at least 20% of their home’s equity.
  • Save up for longer: If your project isn’t urgent, you may be able to save to pay outright in cash, especially if you set up automatic deposits into a high-yield savings account.
  • 0% APR credit card: If you can pay off your project within a few months to a year, opening a new credit card with a 0% intro APR offer is also essentially a free loan.
  • Home Equity Investment (HEI): It’s a partnership where a company pays out a lump sum of cash in exchange for a slice of future appreciation in your home. There are no monthly payments, need for a perfect credit score, or traditional income to qualify. 
  • Home Equity Line of Credit (HELOC): A type of loan that acts like a revolving line of credit. Homeowners can access funds as needed, up to a predetermined limit. Similar to home equity loans, HELOCs allow homeowners to borrow against the equity they have built up in their property.
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Final thoughts

Homeowners have a wide range of financing options to make their home improvement dreams come true. There's a solution for everyone, from traditional options like personal loans and credit cards to specialized alternatives like zero-interest home improvement loans. Remember, choosing a financing option that aligns with your financial goals and capabilities is important.

If credit score, income, work history, or monthly payments are a concern, consider a homeowner-friendly option like Point's Home Equity Investment (HEI). Partnering with Point can be an excellent non-loan option to get the funding you need for your home improvement project. Learn more today.

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