How to Use Home Equity Lines of Credit to Renovate Your Home
Key takeaways
- Rising property values, tight housing inventory, and elevated mortgage rates are prompting many homeowners to remodel instead of relocating.
- Two common ways to access home equity for upgrades are home equity loans and home equity lines of credit (HELOCs). Each has distinct advantages and drawbacks.
- Before using a home equity loan or HELOC for renovations, weigh whether the project will boost your home’s value and map out a repayment plan.
How does using home equity for home improvement work?
There are two main ways to use your home’s equity for renovations: home equity loans and HELOCs. In both cases, the amount you can borrow depends on the equity you’ve built, the portion of the property you own outright.
A home equity loan works much like a traditional mortgage. You borrow a lump sum with a fixed rate, and repayment begins right away. Payments include both principal and interest, with terms usually ranging from five to 30 years.
A HELOC, on the other hand, provides ongoing access to a set line of credit. Most come with variable rates, though some lenders offer fixed-rate choices. HELOCs typically feature a draw period of about 10 years, during which you can withdraw funds and make smaller, interest-only payments. Once that period ends, you enter a repayment phase of 10 to 20 years, paying off the balance in monthly installments.
Your borrowing capacity is tied to your ownership stake and the loan-to-value (LTV) ratio, which compares the loan balance to the home’s current value. Most lenders cap borrowing at 80 to 85 percent of your equity. However, your credit score, income, and payment record can also affect limits.
Why using home equity for home improvement makes sense in 2025
According to housing data firm Cotality, the average homeowner with a mortgage has about $194,000 in tappable equity. This is the amount that can be borrowed while still leaving at least 20 percent equity intact, which lenders generally require.
Homeowners are increasingly investing this equity back into their properties. A 2024 TD Bank survey found that the housing shortage and low rates on existing mortgages are motivating owners to stay put and remodel instead of moving. “More homeowners are saying ‘I want to use the funds to remodel, maintain my home, and grow its value,’” explains Jon Giles, senior vice president and head of strategy and support for TD Residential Lending.
“There are really two ways to access equity for renovations,” he continues. “One is a cash-out refinance. But with today’s low first-mortgage rates, that usually isn’t appealing. The other option is home equity loans or lines of credit.”
In the TD Bank study, more than half of homeowners who tapped equity through HELOCs or loans used the money for property upgrades. Popular projects included eco-friendly features and outdoor improvements.
Rates for HELOCs and home equity loans have been easing since late 2024, now averaging around 8.13 to 8.25 percent. These products often cost less than alternatives such as personal loans, home improvement loans, or credit cards.
And conditions in 2025 continue to support this strategy. High home values, limited supply, and steady mortgage rates are expected to persist, according to Bankrate’s latest housing outlook. Analysts also anticipate that equity loan rates will keep drifting down if the Federal Reserve reduces interest rates.
Increasing energy efficiency
Rising power costs are a reality for Utah households. Between February 2015 and July 2024, the average annual electric bill for a 700 kWh-per-month user went from $945.14 to $1,051.49, according to Utah.gov. While rate increases are unavoidable, there are proven ways to cut energy use and trim bills.
One of the most effective steps is upgrading to Energy Star certified appliances. These products meet Environmental Protection Agency standards and often qualify for rebates from Rocky Mountain Power and Enbridge Gas.
Similar incentives may apply when installing energy-efficient windows or improving insulation.
“Taking advantage of opportunities like these delivers both immediate and lasting rewards,” says Stuart. “They make living in the home more enjoyable, reduce monthly expenses, and appeal to potential buyers.”
Roof and exterior repair
Your roof is the home’s primary shield against the elements, and its age and condition directly affect property value and insurance eligibility.
Roof replacements can exceed $10,000, but a HELOC can make the project more manageable. In addition to protecting the home, new roofs often improve energy performance.
“What’s great about reroofing is that it not only boosts resale value but also gives homeowners more choices,” Stuart explains. “Switching to metal shingles increases longevity, and a new roof can make adding solar panels more feasible.”
Exterior upgrades are another effective way to raise a home’s value. Fresh paint, refinished siding, and improved landscaping all enhance curb appeal.
In Utah, where outdoor living is highly valued, features like a deck or built-in barbeque area can be especially attractive. According to the Journal of Light Construction’s 2024 Cost vs. Value report, adding a deck can recoup up to 82.9 percent of its cost when selling the home.
Updating living environments
Every homebuyer wants a property that feels current, not outdated. The Journal of Light Construction’s 2024 Cost vs. Value report shows that kitchen remodels can return anywhere from 96.1 percent to 38 percent of the project cost at resale, depending on the scale. Bathroom upgrades follow a similar pattern, with potential returns ranging from 96.1 percent to 32.6 percent.
“Using a HELOC for room renovations is a smart approach,” says Stuart. “These projects strengthen a home’s character and make it more functional.”
Basement conversions are another popular choice. Many homeowners have used HELOC funds to finish basements into family rooms, bedrooms, or offices. According to the National Association of Realtors’ 2025 remodeling impact report, basement conversions can recoup about 71 percent of their costs.
Benefits of using home equity for home improvement
Lower interest rates
Because home equity loans and HELOCs are secured by your property, they usually carry lower rates than unsecured financing like personal loans or credit cards. While HELOC rates often run a few points above mortgage rates, they remain far more affordable than other borrowing options. Borrowers with strong credit typically qualify for the best terms.
Tax deduction
Interest on home equity loans and HELOCs may be deductible, but only if the funds are used for buying, repairing, or improving the home tied to the loan.
As of 2025, the IRS allows single and joint filers to deduct interest on up to $750,000 of eligible home loans. Married couples filing separately can deduct interest on up to $375,000. These caps apply across all mortgages and housing-related debt combined. Itemizing deductions is required to claim this benefit.
Possible return on investment
Renovations funded by home equity can add tangible and intangible value. Expanding living space, modernizing fixtures, or improving curb appeal can increase a property’s market price and speed up a sale. If you stay in your home, upgrades help preserve or grow long-term value while also improving your quality of life.
Drawbacks of using home equity for home improvement
Your home is on the line
The biggest risk of borrowing against equity is foreclosure. If you cannot meet repayment obligations, the lender has the right to seize your home.
The loan might be larger than you need
Home equity financing usually involves borrowing tens of thousands of dollars. Lenders often set minimum amounts. Bankrate tracks $30,000 as a common benchmark, which could force you to borrow more than your project requires. Early repayment is sometimes possible, but penalties may apply.
Additional costs
Because home equity loans are structured as mortgages, they involve upfront fees. Expect closing costs such as appraisals and origination fees, usually between 1 and 5 percent of the loan amount. When evaluating affordability, factor these expenses into the total cost of borrowing alongside the interest rate.
What to consider before taking a home equity loan for remodeling
Does the remodel add value to your home?
Not all upgrades produce equal returns. While some can deliver more than 100 percent ROI, others may recoup only a fraction of the cost. Even profitable projects rarely add dollar-for-dollar value. For example, spending $80,000 on a pool does not guarantee an $80,000 increase in your home’s market price.
Consult a real estate agent or appraiser to learn which projects boost appeal and value in your local market. Modest remodels often yield higher returns than luxury ones.
Beyond resale value, think about lifestyle benefits. Renovations like an expanded kitchen or upgraded patio can make daily living more enjoyable for your family.
Did you establish a budget and repayment plan?
Before applying, calculate how much you can reasonably borrow and how long it will take to pay it back. Renovations often exceed initial estimates in both cost and time. Planning conservatively helps prevent financial stress.
“Every borrower needs to ask, ‘What is my personal situation? What is my budget?’” says Giles. “Don’t just rely on an online calculator. Look at your finances and decide what you are comfortable repaying, and how quickly you want to eliminate the debt.”
Have you shopped around among lenders?
Many banks, credit unions, and online lenders offer HELOCs and home equity loans, but availability differs by state and by lender type. Some providers focus only on credit lines, while others offer both loans and credit options.
“Lenders vary in what they provide,” Giles explains. “Understand your needs, then compare options carefully.”
Even small differences in interest rates or terms can add up to significant savings. Take time to explore offers from the best HELOC and home equity loan lenders to secure the most favorable deal.
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