How to Add Remodeling to Your Mortgage

Your mortgage may provide cash for remodeling.

Your mortgage may provide cash for remodeling.

Using the equity in your home to finance remodeling can help you increase the value of your home while also allowing you to deduct the interest on the loan from your taxes. Rolling the costs of remodeling into your mortgage frees up money for major remodeling projects such as adding a bedroom, refinishing a basement or updating a kitchen, which you might not be able to afford otherwise. To add the cost of remodeling to your mortgage, you must have equity in your home that is greater than the cost of your remodeling project.

Step 1

Get an estimate for your remodeling project. This allows you to know how much money you’ll need to add to your mortgage.

Step 2

Apply to a mortgage lender for a cash-out refinance. In this type of loan, you’ll add the cost of your remodeling to the remaining balance on your mortgage and end up with a new mortgage that covers all these costs. As long as the value of your home is greater than the remaining mortgage balance plus the cost of the remodeling, refinancing can result in more favorable mortgage terms and even a lower monthly mortgage payments, if interest rates have fallen since your original mortgage.

Step 3

Open a home equity line of credit or HELOC. A HELOC acts as a second mortgage. The bank that issues the HELOC awards you a line of credit that represents 70 percent to 80 percent of the equity in your home, and you can draw on this amount as needed to finance improvements on your home or to pay other bills. The interest on a HELOC is tax deductible if you itemize deductions on your taxes.

About the Author

Cynthia Myers is the author of numerous novels and her nonfiction work has appeared in publications ranging from "Historic Traveler" to "Texas Highways" to "Medical Practice Management." She has a degree in economics from Sam Houston State University.

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