Two things have been moving in opposite directions this year. Project costs have risen across most trades, and the cost of borrowing against home equity has eased. Averages reported in mid 2026 put variable rate home equity lines of credit in the low to middle seven percent range and fixed rate home equity loans at around the same level, which is the lowest either has been in several years.
Those averages come with a large caveat that gets lost in headlines: they generally describe well qualified borrowers with high credit scores and a low combined loan to value ratio. Actual offers span a very wide range, and shopping several lenders produces meaningfully different results.
Why Homeowners Use Equity for Projects
The reason is usually the first mortgage. A household holding a low fixed rate from several years ago has a strong reason not to refinance the whole balance to access cash. A second lien leaves the first mortgage untouched.
That is the structural argument. It does not make borrowing free, and it does not make a project a good idea on its own.
Line of Credit or Lump Sum
The choice between the two products should follow the shape of the project rather than the rate difference, which is usually small.
A home equity loan is a fixed amount at a fixed rate with a fixed payment. It suits a single contracted job with a known price, such as a roof or an HVAC replacement.
A line of credit lets you draw as you go, typically at a variable rate. It suits phased work, projects with uncertain final scope, or a sequence of projects across a year. The tradeoff is that the payment can change, sometimes substantially, over the term.
For a line of credit, the introductory rate is frequently promotional. Ask what the rate becomes afterwards, how it is calculated, and whether there is a floor or a cap. For a fixed loan, the rate is the rate for the life of it, which makes shopping harder to skip.
Costs Beyond the Rate
- Origination fees and closing costs on either product
- Appraisal requirements, which vary by lender and loan size
- Annual fees on lines of credit
- Early closure fees if the line is closed within a set period
- Inactivity fees on some lines
A lower advertised rate with higher fees can cost more than a higher rate without them, particularly on smaller balances. Ask for the total cost over your expected borrowing period rather than comparing rates alone.
The Risk Is Not Abstract
Both products are secured against your home. That is what makes the rate lower than an unsecured personal loan or a credit card, and it is also what makes default consequential in a way that a credit card default is not.
The practical implication is to borrow for work that either preserves the house or that you would still want at the payment level if your circumstances changed. A roof replacement and a discretionary upgrade are not the same decision even at the same interest rate.
Other Ways Projects Get Financed
Contractor financing. Often convenient and sometimes genuinely competitive. The thing to check is whether a dealer fee is built into the project price, which is a common structure behind unusually low advertised rates. Ask for the cash price and the financed price separately.
Personal loans. Unsecured, generally higher rates, usually faster and without using your home as collateral. Reasonable for smaller projects.
Cash and phasing. Doing a project in stages to fund it from income has real costs, since setup and disruption get paid for more than once, but it avoids interest entirely. The tradeoff is covered in sequencing multiple home projects in one year.
Utility and state program financing. Some states and utilities run financing programs for efficiency work, sometimes at below market rates. These are worth checking alongside rebates, covered in state heat pump rebates are running on different clocks.
Build the Contingency Into the Borrowing
The most common financing mistake on a renovation is borrowing exactly the contract amount. Discoveries during the work then have to be funded from somewhere else, usually more expensively and under time pressure.
Borrowing the contract amount plus a contingency, and simply not drawing it if it is not needed, costs very little on a line of credit and avoids a bad situation. Our guide to budgeting for the parts of a project you cannot see covers how to size that.
Rates and terms vary by lender, credit profile, and location, and none of this is financial advice. A lender or financial adviser can tell you what applies to your situation.
If you want to price the project before you price the loan, tell us what you are planning and we will connect you with contractors serving your area. It is free to use, with no obligation to hire.