Refinancing Tips · May 5, 2025
Cash-Out Refinance for Home Renovations: Is It Worth It?
Using a cash-out refinance to fund home renovations can make strong financial sense — especially when the improvements add value greater than their cost.
Home renovations funded by a cash-out refinance can be one of the most financially sound uses of home equity — especially when the improvements return more in value than they cost.
The Math That Makes Renovation Financing Attractive
Renovation loan (mortgage) rate: approximately 7%. Credit card rate: 18-24%. Personal loan rate: 10-18%. The savings on interest from using mortgage financing vs. consumer debt are substantial.
Which Renovations Have the Best ROI
High return (typically recover 70-100% of cost in home value): Kitchen remodels (midrange), bathroom additions, deck additions, attic conversions to bedroom, window replacements.
Lower return (typically recover 40-70%): Luxury kitchen upgrades, swimming pools, luxury master suites, sunrooms.
Excellent return for sale: Fresh paint (exterior and interior), landscaping, minor bathroom updates, garage door replacement.
When Cash-Out Renovation Financing Makes Sense
You have at least 20% equity after the refinance (keeping LTV at 80% or below). The renovations add more value than they cost (or make the home significantly more livable for you). Your current mortgage rate is similar to or higher than today's rates (so you are not giving up a significant rate advantage). You plan to stay in the home long enough to benefit from both the renovation and the new loan terms.
When to Consider Alternatives
If your current rate is significantly lower than today's rates, a HELOC or home equity loan preserves your first mortgage while still providing renovation funds.
HMS helps you model cash-out refinance vs. HELOC for your specific situation. Call 309-222-8286.