Home improvement debt

Hi everyone,

Background: we bought a house three years ago. Our area has very little new housing (isolated small town surrounded by government/reservation land and one big employer), and a very hot market - we paid $265k for a 1970s house that is livable but not especially nice (and we were very happy to get it). It has gone up in value at least $65k since then. At this point, we want to pay somebody to upgrade our kitchen counters and sink, install a pantry (out into the garage), replace the flooring, put in skylights and move electrical/install recessed lighting. This would modernize our house and bring in a lot of light. We have talked about spending about $50k (though we are still waiting on quotes).

I have been resistant to the idea of taking out a loan (or loans) to do this work. We have talked about moving to a new house that doesn't need so much work, but the market has steadily climbed since we bought, and we would pay much more for that kind of house ($150k+ more than we bought this house for). Both of us have decided that this is investment spending - something that will increase the value of our home. It would also make it more comfortable to live in. We don't have plans of moving out of the area, though it could happen.


Part 1 of question: are we just justifying this? Or is there truth in investing in property?

Part 2 of question: are there loans that are specific to this kind of work? Or low interest personal loans?


Financial background: We have no debt aside from our mortgage, and have about $900 extra per month that gets distributed in our savings. We don't have a huge cushion yet, but have our buffer in place and have some in savings.

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  • One option you may want to look into is a Home Equity Line of Credit. Generally, they are lower interest rates because they are tied in with the mortgage. However, this may require refinancing depending upon the rules in your area so it would be best to talk to the bank about it. The nice thing is that you can use it, pay it down and it is there if you have any other big needs in the future. 

    You could also get a personal loan for the home renovations. It happens quite a bit. The interest rate will be generally lower than a credit card. If you have no other debt, then it seems likely you would qualify but again, you would need to talk to the bank.

    Either way, I would start at the bank where your mortgage is held to see what is available there and then move onto other lenders if necessary.

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  • With rates as low as they are right now, you might consider a cash-out refinance. Those rates will be substantially lower than a home equity line of credit or personal loan. You can also spread out the additional amount over a longer term. (You obviously incur interest for that flexibility, so there's no free lunch.)

    Look at the fees involved both upfront and ongoing (aka interest) and figure out the break-even point.

    You almost never get back (monetary-wise) what you put into home improvements. So it's a poor "investment", in that sense. However, you do get the benefit of using the new features until you sell.

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