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Refinance, HELOC, Home Equity, Home Ownership

Advantages of Cash-Out Refinances for Home Improvements

What You'll Learn: Finance Options for Renovations and the Highest ROI Improvements.


Advantages of Cash-Out Refinances for Home Improvements

If you’re planning on getting some home improvements done, there are several financing options. One is a cash-out refinance. Today we’ll go over how to fund your renovations along with what are some of the most popular and highest Return of Investoment (ROI) projects. Read on for inspiration. 

Should I Refinance For Home Improvements? 

When you get a cash-out to refinance a mortgage loan, one of the best ways to reinvest those funds is to renovate your home. If you plan right, you’ll be adding equity and building your net worth. This type of funding is best if you’re planning on staying in your home for a long while. That way, you’ll have time to recoup the costs of getting the loan. 

On the other hand, if you’re planning on fixing your home up to sell, a cash-out refinance probably isn’t the best option. In that case, a home equity line of credit (HELOC) would be better. Here’s why — with a low-interest HELOC, you draw the funds as you need them, and you can pay the loan off with your proceeds when you sell the house. 

How to Finance Home Improvements

Here are all the ways to finance home improvements sorted in order of lowest to highest interest. 

1.     Cash — Pay as you go. The advantage is you stay within budget and you’re not paying interest on borrowed funds. The disadvantage is the projects might take longer as you save up the money you need. If you’re doing some of the work yourself, it could be an option. 

2.     Cash-Out Refinance — With a cash-out refi, instead of a first mortgage and a home improvement loan, you only have one loan. That makes paying it more convenient. Plus, the interest rate would be lower than other options like HELOCs or personal loans. 

3.     HELOC — This low-interest flexible term loan is good if you’ll be doing renovations over a long period. In that case, you draw the funds as you need them, so you won’t be paying interest on money you don’t need yet. 

4.     Personal Loan — Sometimes, this is called a home improvement loan. It’s not secured by your home, which is an advantage, but the interest is higher. The loan limit will probably be lower than a HELOC. So that might not work for larger projects. 

5.     Credit Cards — A credit card can be suitable for materials, but not all contractors accept credit cards. The disadvantages are higher interest and lower limits. But it’s an unsecured loan which is a plus point. 

6.     Contractor Financing — Some contractors offer to finance, but the interest might not be the best. If you’re getting bids, have them list the financing options separate from the work. That way, you can compare their bid to other contractors not offering to finance. 

Best ROI Home Improvements

When it comes to home improvements, it’s easy to spend money — lots of it. But that doesn’t mean your equity will increase dollar for dollar. If you’re planning on staying in your house forever and are remodeling your home to fit your specific needs, ROI probably isn’t as important. 

But if you’re planning on selling within the next five years, keeping your eyes on ROI is essential, especially if you’re paying for the project with borrowed funds. A helpful resource that goes over which projects have a better chance of recouping the costs is Remodeling Cost vs. Value.  Although you can look up information for your particular state, here’s the national data: 

Top Five Home Improvement Projects With The Highest ROI

1.     Garage Door Replacement — 93% costs recouped

2.     Manufactured Stone Veneer — 92.1% costs recouped

3.     Minor Midrange Kitchen Remodel — 72.2% costs recouped

4.     Fiber-Cement Siding Replacement — 69.4% costs recouped

5.     Vinyl Window Replacement — 68.6% costs recouped

Which Top Home Improvements Are Your Favorites?

If you’re renovating your home for your enjoyment, ROI becomes less critical. Many homeowners who have found their dream home that they plan to raise their family or retire in have a list of how they want to improve their homes. Here are the most popular projects. 

Kitchen Remodel

Remodeling your kitchen can change your home's flow, increase its value, and make entertaining easier. Consider free-standing islands, granite countertops, and high-end cabinetry. Add innovative smart features, modern lighting, energy-efficient windows, and you’ve transformed the entire space. 

Bathroom Remodel

Turning your bathroom into an oasis is a desire of many homeowners. Consider a deep soak tub, spacious glassed-in shower, and if you live in a colder climate, splurge on a heated bathroom floor. 

Attic Conversion

If you need more space and have a good-sized attic, your solution is right above you. Converting an unused attic to an extra bedroom, family room, media room, or home office can give you the extra space you need and the privacy you desire. 

Basement Buildout

Just like an attic, building out an unused basement can add the square footage you need. Consider an in-law suite or living quarters for an adult child returning home. Other ideas are a media room, workout studio, and home office. The options are endless. 

Windows & Door Replacement

Replacing your windows and doors makes a difference on the exterior and interior. Plus, you’ll enjoy lower energy costs. If you have old windows, installing new energy-efficient windows will make you more comfortable during every season. And when it comes to doors, a new front door can significantly transform your entryway. Consider adding sidelights to bring sunshine into the foyer. 

Deck & Patio Addition

Adding a deck or patio can increase your entertaining space tremendously. You can be as simple or elaborate as you choose. If you want a significant transformation, consider a covered outdoor fully-equiped kitchen with a bar and barbeque. The sky’s the limit. 

Home improvements are so much fun and bring lasting pleasure for years. It’s one of the best things about being a homeowner. That’s why choosing the right financing is essential. We hope this information about renovation finance options and home equity loans have been helpful, and you are motivated to start your next project. 


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1Rates are updated daily at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on discount point, which equals percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $400,000; loan-to-value ratio of 75%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.