Should you use a HELOC for home renovations this spring? What experts say

If you're looking to finance home renovations this spring, today's high-rate environment can be a bit discouraging. Although the Fed's series of benchmark rate hikes ended last summer, there have yet to be any rate cuts. As a result, rates on loans and credit lines are still elevated across the board. For example, the average interest rate on credit cards is 21.59% currently, up from 15.05% in 2019. Similarly, the average interest rate on a 24-month personal loan increased from 10.32% to 12.49% over the same timeframe.

But what about funding home renovations with a home equity line of credit (HELOC)? HELOCs are a viable option for many Americans as the recent spike in home values has left the average homeowner with $299,000 in home equity — $193,00 of which is tappable. As for the costs, HELOC rates are up right now compared to a few years ago but still tend to be lower than the rates on most other loan products. 

To help you decide if it's the right move for you, we asked experts about whether it makes sense to use a HELOC for spring home renovations. Here's what you should know.

Find out what HELOC rates you could qualify for here.

Should you use a HELOC for home renovations this spring? What experts say

When deciding if you want to fund home renovations with a HELOC, here are key risks and benefits to weigh, according to experts. 

"Right now, HELOCs might be the best way to pay for home renovations for most homeowners. Because most HELOCs have a variable interest rate, you may end up seeing the actual interest rate fall, as the draw period is 10 years," says Brian Mollo, owner and chief executive officer of Trusted House Buyers. 

Mollo says that if you get a HELOC now and the Fed lowers rates in the fall as predicted, the rate on your HELOC will likely come down. 

In comparison, personal loans and home equity loans come with fixed rates that won't respond to market changes. 

On the flip side, HELOC rates could go up during your 10-year draw period, so it's important that you can afford rate hikes if they do occur. 

"Most analysts and policymakers have adjusted their rate cut predictions for 2024. The Fed has moved its target down to three expected rate cuts from four. To say rates can only go down from here is to say we know exactly what inflation is going to do," says Tyler Weerden, financial planner and founder at Layered Financial. 

"A rate increase for those with a variable HELOC could cause trouble. Trouble not worth having for a home renovation," Weerden says. 

Along the same vein, Mollo notes that if you're confident in your ability to repay a HELOC, it's not too big of a deal to take one out. However, if you're in a volatile industry, you might want to consider a loan type that isn't secured by your primary home. 

Weerden also notes the possibility of declining home values, similar to what occurred during the 2008 financial crisis. 

"The amount of credit available to you through your HELOC is directly linked to your home value. So, what happens if prices drop? In this case, the lender can reduce or even freeze your HELOC, all while you're still required to make the payments," he says. 

Explore your top home equity loan borrowing options online now.

What to consider before taking out a HELOC

If you're leaning toward taking out a HELOC for home renovations and plan to sell your home in the next few years, Mollo recommends evaluating the return on investment (ROI) of your projects. 

"If you're doing something like remodeling your kitchen or finishing a basement, then chances are it will probably be a wise investment. If you're using it to make a bunch of small repairs, you might want to think about alternatives so you're not losing money in the long run," Mollo says. 

Additionally, be sure to shop around before deciding on a HELOC lender. Rates and fees vary, so it'll take some research to find the best deal. 

The bottom line

While HELOCs come with risks, they can also be an affordable source of funds for large projects like home renovations. Whether or not the risks are worth the benefits will depend on your situation and risk tolerance. 

"If you've been in your home for a while and have built up some equity, you might be considering a HELOC. Pouring your equity into improvements can pay off when it comes time to sell," says Omer Reiner, realtor and president of Florida Cash Home Buyers, LLC. 

"The big thing to remember when taking out a HELOC is that no matter what you spend that loan on, you are using your home as collateral, so be sure that you can afford to pay on both your first mortgage and your HELOC every month, otherwise you risk losing your home," Reiner says.