How to Use Home Equity for a Renovation

Learn the pros, cons, and process of tapping your home's equity to fund renovations through HELOCs, home equity loans, and cash-out refinancing.

  1. Calculate how much equity you can actually access. Most lenders let you borrow up to 80-85% of your home's current value, minus what you still owe on your mortgage. If your home is worth $400,000 and you owe $200,000, you have $200,000 in equity but can likely borrow only $120,000-$140,000. Get a recent appraisal or use online valuation tools as a starting point.
  2. Compare your three main borrowing options. A HELOC works like a credit card secured by your home — you draw money as needed and pay interest only on what you use. A home equity loan gives you a lump sum with fixed monthly payments. A cash-out refinance replaces your entire mortgage with a bigger one and gives you the difference in cash.
  3. Run the numbers on interest rates and total costs. HELOCs typically start with variable rates around 7-9% as of 2026, while home equity loans offer fixed rates around 8-10%. Cash-out refinances depend on current mortgage rates — roughly 6-7% in 2026. Factor in closing costs, which range from $500-$3,000 for HELOCs and loans, or 2-5% of the loan amount for refinances.
  4. Match your borrowing method to your renovation timeline. Choose a HELOC if you're renovating in phases over months or years — you only pay interest on money you've actually drawn. Pick a home equity loan for a single large project where you need all the money upfront. Consider cash-out refinancing only if current mortgage rates are close to your existing rate.
  5. Shop around and apply with multiple lenders. Credit unions, community banks, and online lenders often beat big national banks on rates and fees. Apply to 3-4 lenders within a 14-day window — multiple mortgage inquiries in this timeframe count as one hit to your credit score. Compare the annual percentage rate (APR), not just the interest rate.
  6. Plan your repayment before you start spending. HELOCs typically have 10-year draw periods followed by 10-20 year repayment periods where payments can double or triple. Home equity loans have fixed payments for 5-30 years. Build the monthly payment into your budget and have a backup plan if your income drops — remember, your house is the collateral.