How to Finance Your Kitchen Remodel
Kitchen remodels often cost $25,000-$75,000 or more. Unless you have that sitting in savings, you'll need to finance. Understanding your options helps you choose the approach that costs the least and fits your financial situation.
Quick Summary
Best overall
Cash (if available)
Best with equity
HELOC
Avoid
High-interest credit
Kitchen Remodel Financing Options Compared
Each financing option has trade-offs. The right choice depends on your home equity, credit score, savings, and how quickly you need the funds.
Option 1: Pay with Cash/Savings
Best if availableUsing savings to pay for your remodel eliminates interest costs entirely. You'll pay the exact cost of your project with no financing overhead.
Pros
- No interest costs
- No monthly payments
- No debt added
- No application or closing costs
- Immediate access to funds
Cons
- Depletes emergency savings
- Opportunity cost (could invest instead)
- May require waiting to save more
- Large lump sum needed
Best for: Those with savings beyond their emergency fund (typically 6 months of expenses) who want to avoid debt.
Option 2: Home Equity Line of Credit (HELOC)
Most flexibleA HELOC is a revolving credit line secured by your home equity. You can draw funds as needed during a "draw period" (typically 10 years), then repay over a "repayment period" (10-20 years).
Typical rate
Prime + 0.5-2%
(Variable)
Draw period
5-10 years
Closing costs
$0-$500
(Often waived)
Pros
- Only pay interest on what you use
- Draw funds as needed during project
- Lower rates than personal loans
- Potentially tax-deductible interest
- Reusable for future projects
Cons
- Variable rates can increase
- Home is collateral (foreclosure risk)
- Requires sufficient equity
- Appraisal may be required
- Monthly payment varies
Best for: Homeowners with significant equity who want flexibility and don't know exact costs upfront. Ideal for remodels where scope may change.
Option 3: Cash-Out Refinance
Best if rates are lowerReplace your existing mortgage with a new, larger one and take the difference as cash. Works best when current rates are lower than your existing mortgage rate.
Typical rate
Current mortgage rates
(Fixed available)
Loan term
15-30 years
Closing costs
2-5% of loan
Pros
- One monthly payment (combined)
- Fixed rate option available
- Lower rate if you refinance well
- Large amounts available
- Long repayment terms
Cons
- High closing costs
- Restarts your mortgage term
- Takes 30-45 days to close
- Bad if current rates are higher
- Increases total mortgage debt
Caution: Only consider this if you can lower your interest rate OR if you're already planning to refinance. The closing costs (often $5,000-$15,000) can wipe out any benefit.
Option 4: Home Equity Loan
Fixed rate optionA home equity loan provides a lump sum with a fixed interest rate and fixed monthly payments. It's like a second mortgage with predictable terms.
Typical rate
7-12%
(Fixed)
Loan term
5-30 years
Closing costs
2-5% of loan
Pros
- Fixed rate = predictable payments
- Lower rates than personal loans
- Potentially tax-deductible
- Large amounts available
Cons
- Home is collateral
- Closing costs add up
- Less flexible than HELOC
- Full interest from day one
Best for: Those who know their exact budget, want predictable payments, and prefer fixed rates over variable.
Option 5: Personal Loan
No equity neededUnsecured personal loans don't require home equity as collateral. Faster to get but with higher rates. Best for smaller projects or those without equity.
Typical rate
8-20%
(Based on credit)
Loan term
2-7 years
Closing costs
0-5% origination
Pros
- No home equity required
- Fast funding (days, not weeks)
- Home not at risk
- Fixed rate and payment
- No appraisal needed
Cons
- Higher interest rates
- Shorter repayment terms
- Lower borrowing limits
- Interest not tax-deductible
- Higher monthly payments
Best for: Smaller projects ($10,000-$25,000), new homeowners without equity, or those who don't want home as collateral.
Avoid: Credit Cards for Major Renovations
While credit cards offer convenience, their high interest rates (typically 20-29%) make them a costly choice for major renovations.
The math: A $30,000 balance at 24% APR with minimum payments takes 30+ years to pay off and costs over $60,000 in interest. Even with aggressive payments, you'll pay far more than with any other option.
Exception: 0% APR introductory offers can work for smaller projects IF you can pay off the balance before the promotional period ends. Miss that deadline, and you often owe all the back interest.
How to Choose: Decision Framework
Use this framework to identify your best financing option based on your specific situation.
If you have cash savings beyond your emergency fund...
Choose: Cash. Paying cash saves thousands in interest and eliminates monthly payments. Just ensure you keep 6 months of expenses as an untouched emergency fund.
If you have 20%+ home equity and good credit...
Choose: HELOC. The flexibility to draw funds as needed, relatively low rates, and potential tax deduction make this ideal for most homeowners financing a remodel.
If current mortgage rates are lower than your existing rate...
Consider: Cash-out refinance. If you can lower your rate AND get cash for your remodel, this could be advantageous. Run the numbers including closing costs.
If you're a new homeowner without much equity...
Choose: Personal loan. Without equity, this may be your only option. Shop multiple lenders to find the best rate for your credit profile.
If you want predictable payments and have equity...
Choose: Home equity loan. The fixed rate and fixed payment make budgeting simple, unlike a HELOC's variable rate.
Tax Considerations for Kitchen Remodel Financing
Under current tax law, interest on home equity debt may be deductible if the funds substantially improve your home. Kitchen remodels typically qualify.
Deduction Requirements
- Funds must "buy, build, or substantially improve" the home
- You must itemize deductions (not use standard deduction)
- Total mortgage debt (including HELOC) under $750,000
- Keep records of how funds were used
Important: Personal loan interest is NOT tax-deductible for home improvements. Consult a tax professional for advice specific to your situation—tax laws change and personal circumstances vary.
Frequently Asked Questions
What is the best way to finance a kitchen remodel?
The best financing depends on your situation. Cash is ideal if you have savings and don't want interest costs. A HELOC offers flexibility and typically lower rates for those with home equity. Cash-out refinance works if you can lower your mortgage rate. Personal loans are best for smaller projects or those without equity. Avoid high-interest credit cards for major renovations.
Is a HELOC or home equity loan better for kitchen remodeling?
HELOCs are generally better for kitchen remodels because you can draw funds as needed during construction, only paying interest on what you've used. Home equity loans provide a lump sum with fixed rates, which is better if you know the exact cost and prefer predictable payments. HELOCs have variable rates, which adds some uncertainty.
Can I deduct kitchen remodel interest on my taxes?
Under current tax law (2018+), interest on home equity debt is only deductible if the funds are used to "buy, build, or substantially improve" the home securing the loan. Kitchen remodels typically qualify as substantial improvements. However, you must itemize deductions, and there are limits based on total mortgage debt. Consult a tax professional for your specific situation.
How much home equity do I need for a kitchen remodel loan?
Most lenders require you to maintain at least 15-20% equity after borrowing. So if your home is worth $400,000, you'd need to keep $60,000-$80,000 in equity. If you already have a $280,000 mortgage, you could potentially borrow up to $60,000-$80,000 for your remodel depending on the lender's requirements.
Ready for the Next Step?
Once you've chosen your financing method, it's time to create a payment schedule with your contractor. This protects both parties and ensures work progresses before payments are released.