Steven Crews
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Should I Borrow to Renovate?

Renovating your home is a great way to not only make it more comfortable and up-to-date, but it can also help increase its value. Furthermore, depending on the project you undertake, a home renovation can help you build equity in your home, thereby helping you increase your wealth over time.

But as helpful or even necessary as home renovations can be, they are typically very expensive. Depending on the scope of work involved, you could be spending tens of thousands of dollars improving your home.

This is when borrowing to renovate often enters the conversation. If you don’t have access to adequate funds to cover the cost of a renovation, borrowing the money you need can be a good solution.

Let's dig a little deeper into the loan options available to you if borrowing to renovate is something you're considering.

Home Renovation Financing Options

There are a few different avenues that you may take when it comes to getting the funds needed to renovate your home. These are the home renovation financing options you may want to consider:

Personal Loans

One way to gain access to much-needed funds to upgrade your home is through a personal loan. With this financing option, you would be granted a lump sum of money that you can then use as you please, including covering the cost of a home renovation.

The loan amount you are approved for will depend on your creditworthiness, financial health, and ultimately your ability to repay the loan. Typically, a larger personal loan, one that could cover the cost of an expensive home renovation, requires the borrower to have good credit and healthy financial history.

A personal loan is often a better option for smaller renovation projects or improvements and may not be the best choice for homeowners looking to cover the cost of a full-scale renovation of their entire home.

With this option, you may want to consider providing an asset as collateral for the loan. If you do, it would be considered a secured loan. In this case, you may be able to get a lower interest rate compared to an unsecured personal loan, which is not backed by an asset.

Home Equity Loan

For those homeowners who have built up a significant amount of equity, a home equity loan can be a great option to cover the cost of a renovation.

A home equity loan is a loan that uses the equity in your home as collateral. Your lender will provide you with the loan and will register a mortgage on the title of your property.

If you are approved for a home equity loan, you can use the money to finance whatever home renovation project you want to undertake, then pay back the funds through regular installments, which will include both principal and interest.

A home equity loan is similar to a secured personal loan, except your home is being used as the collateral. Furthermore, with a home equity loan, you’ll likely be eligible for a larger amount of money and a lower interest rate.

This makes a home equity loan a better option for those looking to take a large home renovation project.

Home Equity Line of Credit (HELOC)

This type of financing product is similar to a home equity loan in that the equity in your home is used as collateral to secure the loan. But they are quite different in a few ways.

For starters, a HELOC involves having access to a certain amount of credit, somewhat like the credit limit on a credit card. You are allowed to withdraw as much money as you require, as long as it does not exceed the credit limit provided.

Like a credit card, HELOCs are revolving credit. You can borrow funds and pay them back as much as you want, up to the credit limit. You only pay interest on the portion withdrawn, rather than on the full credit amount.

The credit limit on a stand-alone HELOC can be as much as 65% of the market value of your home.

Your HELOC can also be combined with your mortgage. In this case, your home equity line of credit would be mixed with a fixed-term mortgage, which would have an amortization period.

You would be responsible for making regular payments on the principal of the mortgage and interest according to a schedule.

Again, the credit limit on this type of HELOC can be as much as 65% of your home’s market value.

How to Choose The Right Renovation Financing For You

Now that you know your options when it comes to home renovation financing, which one is best for you?

You'll want to take a look at your financial situation, the value of your home, the cost of the renovation, and what you're comfortable with before you decide which avenue to take.

A home equity loan might be a good option if you have a decent amount of equity already built up in your home and the project you wish to undertake is a very expensive one.

In this case, you may be able to gain access to a larger sum of money through a home equity loan compared to a personal loan or HELOC. These types of loans also come with fixed payments, which makes budgeting easier.

But if you don't currently have enough equity in your home to justify a home equity loan, then a personal loan may be something you may want to look into.

Your best bet is to sit down with a seasoned lender or mortgage broker to help you go over all your options relative to your specific financial situation. That way, you'll be in a better position to make a more informed decision that is best for you.

Increasing the Value of Your Home

Before you take out a loan to pay for a home renovation, consider the project first. Certain projects have a tendency to boost the value of a home, while others do little to add to its value.

You would be well-advised to choose a project that will add a significant amount of value to your home to make the funds from a loan work for you.

Some of the best renovations to help appreciate the value of your home include:

  • Kitchen renovations - Kitchens are considered the most important room in a house. They are typically the first space that buyers look at when they're in search of a new home. If your kitchen is worn or could use an overhaul, perhaps this might be the best place to focus your renovations and investment. A kitchen renovation can bring in a high rate of return.
  • Bathroom renovations - Another important space in the home where your renovation funds would be well-spent is the bathroom. While small in size, bathrooms are big in value. Bathroom renovations will not only significantly increase the value of your home but can also increase your chances of a quick sale one you decide to sell.
  • Floor replacement - Updated homes typically have more modern surfaces on the floors, such as hardwood flooring or ceramic tiles. Old worn-out carpeting or peeling vinyl should definitely be replaced if you're looking to boost the value of your home.

Pros and Cons of Borrowing to Renovate

Before you take hammer to nail, be sure to weigh the advantages and disadvantages of renovating your home first. It's a big job that costs a lot of money, so you'd be well-advised to make some considerations first, especially if you're taking on debt.

Here are some pros and cons of borrowing to renovate.


  • Your home will be more modern, stylish, and comfortable for you and your family
  • You can add value to your home
  • You may be able to take advantage of lower interest rates on certain financing products
  • You'll have the opportunity to improve your credit score with every timely loan payment
  • You may be able to deduct the taxes associated with certain renovations that qualify


  • You'll be taking on more debt
  • You'll be responsible for making timely payments every month
  • Your credit score could suffer if you miss payments
  • Your home can be at risk if you default on the loan
  • You might not be able to get the loan amount needed to cover the entire cost of the project

If you feel that a personal loan is the best option for you, then try this little tool below.

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Final Thoughts

Many homeowners dream of renovating their homes to better suit their lifestyle and improve the esthetics of the space, but many are unable to come up with the funds necessary to pay for such expenses.

If you are looking to upgrade your home but need some financial help to do so, be sure to get in touch with a seasoned lender or mortgage broker to help you identify what all your options are.

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