Do you have a growing list of home improvements but no budget to finish the job? With the low federal interest rate, refinancing your mortgage could save you money and clear up extra funds to use for renovations. If you've built up enough equity in your home, you could take out a new loan—and use the remaining money to improve your home. Remodeling your kitchen, building a new back deck or retiling that outdated bathroom floor could be within reach with refinanced mortgage money.

Should I refinance my mortgage to renovate my home?

Not sure if refinancing your mortgage to get cash is right for you? Here's what you should know before you get started. 

The decision to refinance your mortgage shouldn't be taken lightly. While refinancing could open up your ability to improve your home, there are also disadvantages to taking out a second mortgage. 

Pros

• Interest rates on mortgages are typically lower than personal loans or credit cards. This makes it a cheaper method to financing home improvement projects than other options.
• If you're using the funds from your refinanced mortgage for home renovations, it might be tax-deductible. Make sure you keep proof of purchase, like receipts or payment invoices, to back your tax claims.
• Keep payments in one place by combining home renovation costs with your mortgage payment. 
• Increase the value of your home by completing renovation projects that highlight its best features. 
• If you plan to stay in your home until you've paid off your mortgage, you can enjoy your home improvements and make a higher profit when you decide to sell.

Cons

• If you can't afford your new monthly payments, you may fall behind—which can lead to foreclosure.  
• You aren't guaranteed a higher selling price simply because you make improvements to your home. You might not be able to recoup the entire investment, especially if there are high fees associated with the refinancing. 
• Planning to sell your home in the near future? Consider the cost and timeline of your renovations, as it could be a smarter financial decision to sell as-is.
• It could be better for your financial situation to either get a different type of loan or forget refinancing altogether, if the costs and risks are too high. 

You may also consider refinancing your mortgage while interest rates are low. For example, by one calculation, you may be able to save $50,000 over the course of a 30-year mortgage by refinancing in San Jose, California. You can then direct money you save toward projects as they arise.  

Prioritize your home renovations

With newfound cash, it's finally possible to whittle down your to-do list of home renovations. Unfortunately, you'll have limited funds even with your refinanced mortgage money. When prioritizing home renovations, consider what will add the most value to your home if you were to sell it. 

• Fix any structural issues that could make selling a burden.
• Consider updating functional features, such as the roof shingles or water heater. 
• Modernize the main living spaces rather than spending the majority of your budget on one flashy feature.
• Stay away from additions that could narrow the pool of buyers for your home, such as adding a pool. 

Consider the continued cost in comparison to the value a renovation adds to your home when deciding which to complete first. 

Alternative ways to finance my home improvements

If you're not sure that refinancing your mortgage is right for you, there are other options. Here's what you could try instead. 

Personal loans

If you're uncomfortable refinancing your mortgage because of the risk of putting up your home as collateral, a personal loan could be a good option for you. A personal loan is unsecured debt, meaning you don't have to use collateral to obtain it. Keep in mind your credit score will impact the loan amount and interest rate. 

Credit cards

Every credit card has different terms, conditions and interest rates. For a home improvement project, look for one with a 0% intro APR. Because you won't pay interest during a certain time frame, you can pay off your home improvements over time rather than all at once. Certain contractors may charge a fee for paying with a credit card, so factor in these extra costs when deciding whether a credit card is the best way to pay for your home renovations. Also, remember to pay off the balance before the promotional interest rate expires. Otherwise, you could be paying more than you expected. 

Savings

Accessing a sizable savings account isn't an option for everyone. However, if you do have a nest egg, consider using it. Paying for home renovations with a savings account offers the unique benefit of not having to pay interest. Try to use only a portion of it, so you have some funds left for emergencies. Though it can be scary to use your hard-earned savings, doing so could end up saving you money in the long run. You'll be paying yourself back over time, rather than a third-party lender.