Does It Make Sense to Borrow Funds for Home Renovations?

The COVID-19 pandemic has made most people “home bodies” – regardless of whether or not they want to be – and our new normal has led to a variety of home renovations, like office space, room(s) for home schooling, and even outdoor kitchens.

But anyone who has undergone a major home improvement project knows that it can be an expensive endeavor. With that in mind, does it make sense to borrow the funds that you need for making these updates?

The answer is it depends.

There could actually be a couple of financing options available if you are planning to do some major updates to your home. These can include a home equity loan or a personal home improvement loan.

Home equity loans – which are oftentimes referred to as second mortgages – involve using the equity (the difference between your current mortgage balance and the value of your home) as collateral for funds that are being borrowed.

Generally, homeowners may borrow up to 85% of the equity in their property. So, if your home is valued at $250,000 and you have a remaining mortgage balance of $150,000, you could secure a home equity loan of up to $85,000. ($100,000 equity X 85% = $85,000).

Alternatively, a home improvement loan is not secured by the property. Because of that, it is riskier for the lender. In order to accommodate for the added risk, the lender will usually charge a higher interest rate on a home improvement loan than they would on a loan that is secured by the property.

Before shopping for any type of loan for home improvements, though, it is beneficial to get an estimate of just how much you will need to complete the project. It is also helpful to build in some “cushion.”

If you reside in the Central Florida locale and you’re considering a home renovation, contact LP Design and Renovation at (407) 901-6215 or via email by going to

Home Equity Loan vs. Personal Loan: What’s the Difference for Home Improvement Projects? By Tyler Yates. Earnest. June 18, 2020.


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