Sturty / iStock.com
Commitment to our readers
The GOBankingRates editorial team is committed to providing you with unbiased reviews and information. We use data-driven methods to evaluate financial products and services – our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our review methodology for products and services.
20 years
Helping you become richer
trusted by
millions of readers
If you’re considering using home equity to finance a renovation, you’re not alone. This is one of the most common ways homeowners finance major upgrades.
Home equity is the difference between your home’s value and the amount you still owe on your mortgage. You can borrow against that value to pay for improvements such as kitchen, bathroom, or structural repairs.
In 2026, this strategy is gaining popularity as many homeowners are staying put rather than relocating due to rising costs, home values remain high and demand for renovation is increasing.
In this guide, you will learn:
- Best Ways to Use Home Equity for Renovation
- Benefits, Risks and When It Makes Sense
- How to decide if this is the right move
Home Equity Renovation: At a Glance
Speciality Description What is this Borrowing against the value of your home to finance improvements general use Kitchen, Bathroom, Renovations, Additions main option Home Equity Loan, HELOC, Cash-out Refinance interest rates usually less than credit cards risk level Medium (used as home collateral) best for Large, value-adding projects
What is Home Equity (and how do you use it)?
Home equity is calculated by subtracting your mortgage balance from the current value of your home. You can tap into it using:
These funds can be used for renewal, often at lower interest rates than unsecured loans such as credit cards.
3 Main Ways to Use Home Equity to Renovate
Let’s consider each of those three options in a little more detail:
1. Home Equity Loan (Best for Fixed Projects)
| Speciality | Description |
|---|---|
| Payment | lump sum |
| Rate | fixed |
| best for | one time renewal |
Home equity loans give you predictable payments and work well when you know your exact project cost.
2. HELOC (best for ongoing projects)
| Speciality | Description |
|---|---|
| Payment | borrow as needed |
| Rate | generally variable |
| best for | Multi-Step Renewal |
HELOC offers flexibility. You can withdraw funds over time and pay interest only on what you use.
3. Cash-out Refinancing (best for larger projects)
| Speciality | Description |
|---|---|
| structure | replace mortgage with larger loan |
| Rate | new mortgage rates |
| best for | major renovation |
If you can secure a favorable rate compared to your current mortgage this option may be worthwhile.
Benefits vs Tradeoffs
| Social class | benefits | by agreements |
|---|---|---|
| Cost | Lower rates than credit cards | Closing costs may apply |
| access | large borrowing capacity | Adequate equity is required |
| Flexibility | Multiple Financing Options | Debt burden may increase |
| ROI potential | Home value may increase | Not all projects are successful |
When it makes sense to use home equity to renovate
If this sounds like you… Then using equity might work You are doing a major upgrade Kitchen, Addition, Structural Repair You expect the value of the home to increase Renovation with Strong ROI You want low interest rates Compared to credit card or personal loan You have significant equity built up Easy approval and better terms When it might not be worth it
If this sounds like you… then reconsider You are only doing a cosmetic upgrade the cost may not be justified you have very little equity hard to qualify You are planning to move soon Investment cannot be recouped you are financially fed up The risk of overusing your home
Key Risks to Understand
1. Your home is collateral
If you can’t make payments, you risk foreclosure.
2. Not all upgrades add value
Some projects will not increase resale value enough to justify the cost.
3. Variable Rates (HELOC)
Payments may increase as interest rates rise.
4. Borrow more
Easy access to equity may lead to borrowing too much.
real world example
We say:
- Your house is worth $400,000
- You owe $250,000
You may be able to borrow 80 to 90% of your home’s value, minus your mortgage balance. This leaves you with approximately $70,000 to $110,000 for renovation.
Which upgrades are worth it?
Before you borrow, ask: Will this really increase the value of my home?
Projects that often give strong returns:
- kitchen remodel
- bathroom upgrade
- energy-efficient improvements
- roof or structural repair
Low ROI Projects:
- luxury upgrades
- Highly personalized design
Quick Decision Guide
Need flexible funding for a long project? Use a HELOC
Do you have a fixed renovation budget? Use a Home Equity Loan
Planning a big change? Consider a Cash-Out Refinance
Not sure the project adds value? Avoid borrowing against equity
final take to go
Using home equity for a renovation can be a smart financial move, but only if it’s used strategically. In 2026, this is more common than ever as homeowners are increasingly staying put, equity levels are high and renovation demand is strong.
But remember: You’re borrowing against your home, not just taking out a loan.
Smartest way:
- focus value added projects
- Borrow only what you need
- Choose the right financing option for your timeline
When done right, home equity can help you improve your home and build long-term wealth.
Home Equity Renovation FAQs
- Can you use home equity for renovation?
- Yes. You can use a home equity loan, HELOC, or cash-out refinance to finance home improvements.
- Is it a good idea to use home equity for renovation?
- This may especially be the case for projects that increase the value of your home. However, there is risk because your home is used as collateral.
- What is the best way to use home equity for renovation?
- HELOCs are best for flexible, ongoing projects, while home equity loans work well for fixed-cost renovations.
- How much equity can you borrow?
- Most lenders allow you to borrow 80% to 90% of your home’s value, minus your remaining mortgage balance.
- Do renovations increase home value?
- Some do, like kitchens and bathrooms, but not all projects provide a strong return on investment.
- What are the risks of using home equity?
- The biggest risks include foreclosure if you can’t make payments, increased debt, and potential losses if renovations don’t add value.
Information is accurate as of March 18, 2026.
Our in-house research team and on-site financial experts work together to create accurate, unbiased and up-to-date content. We fact-check every statistic, quote and fact using reliable primary resources to ensure that the information we provide is correct. You can learn more about GOBankingRates’ processes and standards in our Editorial Policy.