Cash-Out Refinance for Home Improvements
Home improvements are one of the most popular reasons for a cash-out refinance. After 17 years helping homeowners across the country refinance, I have worked with borrowers using this strategy for everything from kitchens to whole-home additions. You tap into your equity, upgrade your home, and potentially increase its value. Here is how to think about it.
Why Use a Cash-Out Refinance for Renovations?
Typically lower rates than alternatives. A cash-out refinance typically has a lower rate than a personal loan, credit card, or even a home equity loan. That means the cost of borrowing for your project may be less.
One loan, one payment. Instead of juggling your mortgage and a separate home improvement loan, everything is rolled into a single payment.
May increase your home's value. Some renovations add real value to your home. A kitchen remodel, bathroom update, or added living space can make your home worth more.
Possible tax benefits. Interest on a cash-out refinance used for home improvements may be tax deductible. Consult a tax professional for your specific situation.
Which Improvements Add Value?
Not all renovations are equal when it comes to return on investment. Projects that tend to add value include:
- Kitchen remodels
- Bathroom updates
- Adding living space (finished basement, extra bedroom)
- Energy-efficient upgrades (new windows, insulation, HVAC)
- Exterior improvements (siding, roofing, landscaping)
Highly personalized projects (like a luxury home theater or a swimming pool) may not add value equal to their cost.
How Much Can You Borrow?
Most lenders require you to keep at least 20 percent equity in your home after the cash-out. So if your home is worth a certain amount and you owe a smaller amount, the difference between the two (minus the 20 percent cushion) is roughly what you could access.
Things to Consider
Do not over-improve for your neighborhood. If your home becomes the most expensive on the block, you may not recoup the investment when you sell.
Have a clear budget. Renovation costs can escalate quickly. Know what you are spending before you borrow.
Factor in closing costs. The refinance has costs of its own. Make sure the total math works.
Check your rate and see how much equity you could access at Lendtrain. It takes 30 seconds. Run the refinance break-even point math to confirm the total project costs make sense.
Rate quotes are estimates based on the credit score you enter. Actual rates may differ based on verified credit, income, and property details. Lendtrain (NMLS# 1844873) is a licensed mortgage broker. Equal Housing Opportunity.