Using a Home Improvement Loan Calculator

8 Min Read | Published: August 5, 2024

A couple working on home improvement by painting their apartment

This article contains general information and is not intended to provide information that is specific to American Express products and services. Similar products and services offered by different companies will have different features and you should always read about product details before acquiring any financial product.

See how to calculate how much you may be able to borrow for a home improvement loan. You can use a calculator to plan your monthly payments.

At-A-Glance

There are a number of home improvement loans that can allow you to finance part or all of a home renovation.
Personal loans, home equity loans, home equity lines of credit (HELOCs), and cash-out refinances are several examples of home improvement loans.
Before you take out a home improvement loan, it’s a good idea to calculate your financing costs with a home improvement calculator.

The average cost of a single home renovation in the U.S. is $22,000.¹ Depending on your financial situation and the project at hand, you may need to finance some or all of it. With the right tools and a solid understanding of all your options, you can budget for home improvements effectively.

In this article, we’ll look at different types of home improvement loans, and see how you can calculate home improvement costs to secure financing for your renovation project.

Types of Home Improvement Loans

Fortunately, there are a variety of home improvement loans that can help you finance home renovations. Here’s a closer look at four popular options: home equity loans, home equity lines of credit (HELOCs), personal loans, and cash-out refinances.²

Types of Home Improvement Loans

	Home Equity Loan	Home Equity Line of Credit (HELOC)	Personal Loan	Cash-Out Refinance
How It Works:	Home equity loans are secured by the equity you have in your home. You receive a lump sum of money upfront and repay it over time, typically via fixed monthly payments over a period of time that’s typically between five and 20 years.³	A HELOC is similar to a home equity loan in that it’s also tied to your home equity. However, it acts as a revolving line of credit, meaning you can withdraw funds as you want to, up to a set credit limit, during the draw period which is typically up to 10 years.⁴ Once the draw period has ended, the loan may transition to the repayment period, which could be as long as 20 years.⁵	Offered by banks, credit unions, and online lenders, personal loans provide a set amount of money all at once. You’ll usually repay a personal loan with interest over a term, typically ranging between one and 12 years.⁵ While it doesn’t consider the equity in your home, personal loan lenders will review your credit score to determine whether you qualify.	With a cash-out refinance, you refinance your mortgage for more than its outstanding balance. Then, you pocket the difference as cash and can apply it toward home improvements.
Potential Risks:	If you default on your loan, the lender has the right to put your home into foreclosure.	The lender may foreclose your home if you fail to make your repayments.	Defaulting on a personal loan could result in the lender sending the loan to collections.	A cash-out refinance will increase your mortgage balance. Failing to repay the loan could result in foreclosure.
May Be a Good Option For:	Homeowners with equity who know exactly how much cash they need for a renovation	Homeowners with equity who need funds for an ongoing project	Borrowers with a small or midsize project who don’t have or want to use their home equity	Borrowers who prefer low monthly payments for larger renovations

Home Equity Loan

Home Equity Line of Credit (HELOC)

Personal Loan

Cash-Out Refinance

How It Works:

Home equity loans are secured by the equity you have in your home. You receive a lump sum of money upfront and repay it over time, typically via fixed monthly payments over a period of time that’s typically between five and 20 years.³

A HELOC is similar to a home equity loan in that it’s also tied to your home equity. However, it acts as a revolving line of credit, meaning you can withdraw funds as you want to, up to a set credit limit, during the draw period which is typically up to 10 years.⁴

Once the draw period has ended, the loan may transition to the repayment period, which could be as long as 20 years.⁵

Offered by banks, credit unions, and online lenders, personal loans provide a set amount of money all at once. You’ll usually repay a personal loan with interest over a term, typically ranging between one and 12 years.⁵ While it doesn’t consider the equity in your home, personal loan lenders will review your credit score to determine whether you qualify.

With a cash-out refinance, you refinance your mortgage for more than its outstanding balance. Then, you pocket the difference as cash and can apply it toward home improvements.

Potential Risks:

If you default on your loan, the lender has the right to put your home into foreclosure.

The lender may foreclose your home if you fail to make your repayments.

Defaulting on a personal loan could result in the lender sending the loan to collections.

A cash-out refinance will increase your mortgage balance. Failing to repay the loan could result in foreclosure.

May Be a Good Option For:

Homeowners with equity who know exactly how much cash they need for a renovation

Homeowners with equity who need funds for an ongoing project

Borrowers with a small or midsize project who don’t have or want to use their home equity

Borrowers who prefer low monthly payments for larger renovations

Calculating Home Improvement Costs

Before you commit to a home renovation, it’s important to determine how much it will cost you so you can avoid unwanted financial surprises and budget accordingly. You may calculate it manually once you do your research and/or receive quotes for materials and labor. It’s best to obtain quotes from two or three reputable contractors for comparison. Look for companies that have been highly reviewed and have been given a high rating on the Better Business Buruea^® website. Once you have your quotes in, you’ll have good idea about how much you can expect to pay for the renovation project in question.

A home improvement loan calculator can also come in handy if you plan to finance your project with a home improvement loan. A good calculator should give you the cost of borrowing, including interest and monthly payments.⁶

Using a Home Improvement Loans Calculator

With a home improvement loan calculator, you can quickly figure out the total cost of financing your renovation. Be prepared to enter the budget for your project, the interest rate you may have, and the repayment period. The calculator will then give you your estimated monthly payment amount, estimated total interest payments, and estimated total repayment amount.⁷

Let’s say you want to remodel your kitchen and you estimate that it will be around $20,000. Based on a 9.75% interest rate and 36-month term, your monthly payments will be approximately $643. You’ll pay approximately $3,147.96 total in interest and spend $23,147.96 in total on your home improvement loan. Note that while calculators can be useful for getting an estimate, the exact amount of interest and your monthly payments will vary, depending on the interest rate, loan term, and how interest is calculated.

How to Find the Best Home Improvement Loan

As you shop around, you’ll find that home improvement loans vary greatly. That’s why it’s a good idea to compare the following factors:

Interest Rates
The interest rate you receive will impact your monthly payments as well as how much you spend on your loan. A lower interest rate can save you hundreds or even thousands of dollars. Since they’re secured to your home, you can expect better rates on home equity loans and HELOCs than personal loans.
Loan Terms
Loan terms refer to the amount of time you’ll have to pay back your loan. In general, terms are longer on home equity products than on personal loans. Note that while longer terms lead to lower monthly payments, you’ll typically pay more in interest in the long run.
Loan Amounts
Loan amounts are how much money you borrow from your lender. Personal loans may cap out at $50,000 or $100,000.⁸ Home equity loans, HELOCs, and cash-out refinances may allow you to borrow up to 85% of the equity you have in your home.⁹
Fees
Home improvement loans may come with fees that will make your loan more expensive. Personal loan lenders, for example, often charge origination fees and application fees. You may also pay closing costs with home equity products.

Did you know?

If you decide to pay for a home renovation with a credit card, consider looking for a card that offers a 0% Annual Percentage Rate (APR) introductory rate as it can help you to save on interest for certain purchases that are made (and repaid) within a set period of time.¹⁰ Note that you’ll still need to make at least the minimum payment each month to avoid interest.

Frequently Asked Questions

Credit scores for home improvement loans vary by lender and loan type. Most lenders, however, require a credit score of at least 660.¹¹

Interest rates for home improvement loans in the form of personal loans may be anywhere between 5% to over 30%. You may be able to obtain lower rates with secured loans, like home equity loans and HELOCs.¹²

Some lenders will allow you to finance your home renovations and your home in one loan. If this option interests you, you could look into Fannie Mae HomeStyle Renovation loans¹³ and the FHA 203(k) loan program (also known as the 203(k) Rehabilitation Mortgage Insurance Program).¹⁴

The Takeaway

Home improvement projects can be pricey. The good news is home improvement loans can help make them more affordable. Several examples of home improvement loans you might want to explore include personal loans, home equity loans, home equity lines of credit (HELOCs), and cash-out refinances. A home improvement calculator can help you estimate your total cost of financing.

¹ “Home Renovation Costs And Estimation Template,” Rocket Mortgage

^2,3,4,9 “6 Types of Home Improvement Loans to Fit Your Project,” Bankrate

⁵ “What is the draw period on a HELOC and how does it work?,” Bankrate

⁶ “Use a Home Remodel Costs Estimator to Plan Your Remodel [+ Estimation Template],” Angi

^7,9,10,11,12 “Home Improvement Loan Calculator: Find Your Renovation Cost,” Forbes

⁸ “What Is the Max Amount for Personal Loans?,” Investopedia

¹³ “HomeStyle Renovation,” Fannie Mae

¹⁴ “203(k) REHABILITATION MORTGAGE INSURANCE PROGRAM,” U.S. Department of Housing and Urban Development (HUD)

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Anna Baluch is a personal finance writer from Cleveland, OH. She enjoys helping people from all walks of life make smart financial decisions. Her work can be seen on Credit Karma, Forbes, LendingTree, Insurify, and many other publications. Connect with Anna on LinkedIn.

All Credit Intel content is written by freelance authors and commissioned and paid for by American Express.

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