5 Ways on How to Finance a Home Renovation

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Renovation is something many homeowners do not want to save for, and in most cases finding it very difficult to pay for them. If there is a need to renovate your home, then you have to make sure that you have saved enough for that. You should also check the average cost of loft conversion or any renovation you want before finding the professionals to hire.

Refinancing your mortgage 

There are two ways under this which cover our mortgage with a refinance; 

Refinancing your home at a lower interest rate: – the monthly instalments are reduced, thus enabling you to save more. This will make it easy for you if the need for home renovation arises because you would have saved enough for your projects. 

Cash-out refinances: – Firstly, a set amount is given to the homeowner for renovation. This amount of money is then transferred to a new mortgage. However, the mortgage will then be replaced with a new one. However, a cash-out refinance is considered when you are confident that the value of your home will increase with the improvements you make.  

In most cases, cash-out finance is used for consolidating debts, thus increasing mortgage balance. The interest rate provided is usually lower than home equity thus being the best choice to quit several homeowners.  


  • Cash is readily available for use in major home improvement. 
  • It is the standard method of financing a large home renovation. 
  • It also converts your current mortgage to one with a lower rate. 
  • Lower interest rates are paid. 


  • It increases mortgage balance for the homeowner 

Home equity line of credit 

Basically, it allows homeowners to borrow against the ownership you already possess in the home you currently in. Rain day funds work like a credit card, in this case, you are only allowed to borrow based on how much your home has accumulated. 

 In most cases, lenders cannot give you more than what your house is worth, for example, if your house is worth $300,000 and you have a mortgage of about $150,000. This brings to a conclusion that you have 50% equity in your house and this is probably $100,000. 

Take this amount and multiply by 85% thus adding up to $85,000 which you are probably allowed to borrow by the lender. At Fortune Credit, you are permitted competitive rates that may lead to better amounts. 

However, a home equity line of credit has variability in their interest rates. Rainy day funds give homeowners easy access to home renovation financing as it only requires them to pay for what they use. In some cases, the lenders might decide to lend money with interest-free lines of credit, so long as the money borrowed is put in house improvement projects.  


  • A large amount of money is readily available for large projects like additions. 
  • It provides homeowners with lower interests compared to credit cards and personal loans. 


  • You keep on reducing the amount you intend to get when you sell the house by depleting your equity regularly. 
  • A large amount of money available with this loan encourages many homeowners to spend the money on other things rather than renovating their homes. 

Renovation financing 

These might be the best option for the homeowners that do have little in their accounts. Renovation financing and cash-out refinance co-relate but the difference is, the lender of the loan to finance the house bases the loan on what the house will be worth when the renovation is through, unlike in cash refinance where the loan is based on what the house worth’s currently.  

Additionally, the lender of the loan then pays the contractor when the work is ongoing to give the back the surety of its collateral security. However, as one way of financing a home renovation, it has a significant impact on many homeowners. It has improved their home’s value, thus increasing the home mortgage. 


It is the easiest way of financing your home renovation is relatively simple as you are only required to save enough to finance your projects. In case, you don’t need to pay interests unlike in rainy day funds where loans are involved.  

Moreover, it may not take you a long time to save for your home renovation, depending on your monthly income. It may only be tiresome where large projects are involved, and one needs to have much for repair.  


  • No fees, charges, or interest fees. 
  • The homeowner is independent. 
  • They don’t need their funds to be liquidated. 


  • A lot of people may not have enough cash for larger projects, for example, full-room remodelling. 
  • It depletes any reserves you may have. 


Many homeowners intend to use this home financing option because they withdraw cash from sources that are not used at home; the best example is a retirement account. However, it reduces the savings that you intend to have at your retirement. These might be due to the penalties and taxes that are charged. It might not be very much convincing in terms of financing a home renovation.  

Moreover, the strength of a retirement benefits account comes from a momentum continuously built as wealth accumulates. Reinvestments and dividends will lower your contribution when you don’t take any money out of your account as earnings will lead to more profits. Whatever boost you might get in your equity may not be delivered in your compound earnings. 


  • Borrowing from yourself does not cost you anything, unlike in-home equity loans. 
  • Earnings lead to more profits when you don’t take money out regularly. 


  • In case you change a company or lose your job, you will have to reimburse your loan immediately, failure to which you may face a penalty. 

The Bottom Line 

It is very crucial for the homeowner to always take into account the different interest rates on the various loans they have taken. They should also account for any value that the improvement will have added to their home in case they decide to sell it. Every homeowner is required to secure the financing they need to make it for them to continue with their projects. For more information, find a mortgage specialist to find out which option is right for you.

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