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If you’ve spent a lot of time at home in the past year, you might have had it with your dated kitchen, too-small home office or lackluster backyard. You’re thinking home renovation, but you aren’t sure how to pay for it. Of course, using your own savings for a home renovation is the ideal scenario, but if you don’t have it and want to renovate, options like a home equity line of credit (HELOC), personal loan or home equity loan can get you over the hurdle. “When it comes to renovating your home, financing options are actually quite bountiful,”  says Erin A. Alton, a mortgage consultant at Fairway Independent Mortgage Corporation in Annapolis. But, she adds: “There’s no one-product that fits all.” Here’s how to decide between a HELOC, home equity loan and personal loan.


A home equity line of credit is a loan that allows homeowners to access cash, as needed, using their home as collateral.

The pros of a HELOC: They have two big advantages over home equity loans and personal loans: Interest rates for HELOCs right now tend to start very low (some rates are now starting around 2{49352ce17ba8b8c977b46090d4022735cbbf9c8d2a96e7181f87be9b36a1fd69}), and they offer homeowners flexibility as you can take the money as needed, rather than getting the money in a lump sum as you would with a home equity loan or personal loan. “You can use what you need and not pay any interest on the rest, even though it is available if you need it,” says Bobbi Rebell, certified financial planner and personal finance expert at Tally. Andrew Ragusa, CEO of REMI Realty in New York, says HELOCs are one of the best ways to borrow money now, because some borrowers can get it at a rate anywhere from 2{49352ce17ba8b8c977b46090d4022735cbbf9c8d2a96e7181f87be9b36a1fd69} to 4{49352ce17ba8b8c977b46090d4022735cbbf9c8d2a96e7181f87be9b36a1fd69} depending on your credit score. “There’s no monthly maintenance fee to pay and you only pay interest on the amount you use,” adds Ragusa.

The cons of a HELOC: That said, they’re not perfect. HELOCs may come with closing costs, and it can take a few weeks or more before obtaining the funds. What’s more, HELOCs typically have variable interest rates so their rates can go higher than a home equity loan. Another thing to consider: “You can pay them down and then borrow again. But if the value of your home goes down or you have a change in your creditworthiness, the bank can lower or revoke the loan,” says Rebell. And, of course, you are using your home as collateral with a HELOC, so if you don’t repay you can lose your home.

Who a HELOC works best for:  People who aren’t sure how much money their project will cost and anyone looking to consolidate high-interest debt.

Home equity loan

A home equity loan is a lump sum of money that a homeowner can borrow against the equity they’ve built in their home.

The pros of a home equity loan: Though home equity loan rates often start higher than HELOC rates right now, they are fixed and typically offer lower rates than personal loans, with some equity loan rates starting as low as about 3{49352ce17ba8b8c977b46090d4022735cbbf9c8d2a96e7181f87be9b36a1fd69}. Some pros say it’s smart to lock in that low rate for the duration of a loan right now, especially if you know it will take you a bit to repay. “You borrow all the money at once and are locked into a fixed monthly payment for the entire repayment term,” explains Greg McBride, Bankrate’s chief financial analyst. You can often get a good sized loan too: “If you’ve got a lot of equity in your home, then you can potentially get a sizable loan, though usually the combined amount of home equity loan and the amount you owe on your mortgage can’t exceed 85{49352ce17ba8b8c977b46090d4022735cbbf9c8d2a96e7181f87be9b36a1fd69} of your home’s value,” says Lending Tree’s senior economic analyst, Jacob Channel.

The cons of a home equity loan: You have to take the money on a home equity loan as one lump sum that you begin repaying quickly, so if you don’t need the money all at once, this might not be the right option for you. Another drawback to a home equity loan is that you’ll likely need to pay between 2{49352ce17ba8b8c977b46090d4022735cbbf9c8d2a96e7181f87be9b36a1fd69}-5{49352ce17ba8b8c977b46090d4022735cbbf9c8d2a96e7181f87be9b36a1fd69} in closing costs, according to Channel. And unlike personal loans ,which tend to process quickly, home equity loans can take between two and six weeks to close. And Rebell warns that with this option, you’re using your home as collateral, so if you fall into financial trouble and can’t make payments, your home may be at risk. 

Who a home equity loan works best for: A home equity loan is great for homeowners who know how much money they need to complete a project.

Personal loan

A personal loan is a one-time cash payment from a lender that is typically paid back in monthly installments. 

The pros of a personal loan: A personal loan can offer the easiest and fastest approval, with funds potentially landing in your account within 72 hours. And because these loans are typically unsecured, you’re not putting your house at risk if you fail to repay (your credit, though, is another story). 

The cons of a personal loan: “Because it’s unsecured, the amount you can borrow will be less than what a home equity product may provide and the interest rate will be higher,” says McBride.  Channel notes that though you’ll get a lump sum payment and don’t necessarily need to put up collateral, higher interest rates and shorter repayment terms can mean monthly payments are more difficult to keep up with. Personal loans are also subject to fees, which may average 1{49352ce17ba8b8c977b46090d4022735cbbf9c8d2a96e7181f87be9b36a1fd69} to 8{49352ce17ba8b8c977b46090d4022735cbbf9c8d2a96e7181f87be9b36a1fd69} of the total loan.

Who a personal loan works best for:  Borrowers who need funds more quickly may want to consider a personal loan.