Using a Cash-Out Refinance to Pay for Home Improvements

A new kitchen, an updated bathroom, a screened porch or a fresh landscape design can make your home more enjoyable and may add value. The question is how to pay for it. If you have built up equity, a cash-out refinance is one option worth understanding.

How a Cash-Out Refinance Works

With a cash-out refinance, you replace your current mortgage with a new, larger loan. The difference between your old balance and the new loan, minus closing costs, comes to you as cash. You can then use those funds for your renovation.

Because the money is tied to your home, the interest rate on a cash-out refinance is often lower than many credit cards or personal loans. Interest on mortgage debt used to improve your home may also be tax-deductible in some cases, but the rules are specific, so check with a tax professional about your situation.

When It May Make Sense

• You have meaningful equity in your home.
• You have a large project with a fairly clear cost.
• The new loan terms still fit your monthly budget.
• Replacing your current rate makes sense, or the benefit of the project outweighs any rate change.

If you already have a low rate you want to keep, a HELOC might be a better fit. It lets you borrow against your equity as a second loan, leaving your first mortgage alone.

Plan the Project Before You Apply

A little planning protects your budget and helps you borrow the right amount:

1. Prioritize: Decide which projects matter most, such as repairs and safety updates, before you add nice-to-haves.
2. Get estimates: Collect written bids from licensed, insured contractors.
3. Add a cushion: Renovations often uncover surprises, so plan a contingency.
4. Check permits: Make sure the work meets local codes and that permits are pulled where needed.

The Refinance Process, Step by Step

The process looks a lot like getting your original mortgage. Your loan officer will review your income, credit and assets, and an appraisal will confirm your home’s current value, which determines how much equity you can access. After underwriting, you sign your new loan and receive your funds once any required waiting period passes.

Before you commit, compare the total cost of the refinance with other ways to pay for the project. Your loan officer can show you side-by-side scenarios so you can see the monthly payment and long-term cost of each option. Keep in mind that borrowing against your home increases the debt tied to it, so it is wise to fund projects that improve your home’s comfort, safety or value rather than everyday expenses. You can also read more on our refinance page.

Dreaming up a home project? A FLO Mortgage loan officer can help you figure out whether a cash-out refinance, a HELOC or another approach fits best. Talk with our team today.

This article is for general education and is not a commitment to lend. All loans are subject to credit approval, underwriting guidelines and program availability. FLO Mortgage, Company NMLS #1835856. Equal Housing Opportunity.