How to Finance a Home Renovation: Loans, HELOCs, and Grants

When Harpreet Singh chose to convert his basement into a rental suite, his renovation funding boiled down to two basic choices: use personal savings or borrow. As a real estate agent and former financial adviser, Singh has guided many clients through renovation decisions and the financial trade-offs that come with them. His general advice depends on whether the money spent will be recouped, either through rental income or increased resale value.

“If your property will generate rental income, financing a renovation is easier to justify because you’ll have cash flow to cover the payments,” Singh said. “If there’s no income involved and you’re spending on a particular finish or amenity, you need to decide whether it’s a need or a want.”

Should you take out a loan for a home renovation?

More Canadians are using financing to pay for home improvement projects, but borrowing should fit the homeowner’s situation and budget. Singh is financing his basement conversion with a home equity line of credit (HELOC), a flexible loan that lets homeowners borrow against the equity in their property. A HELOC typically increases available credit as the mortgage principal is paid down, offering revolving access to funds during the renovation.

Singh explained that using a HELOC gives him flexibility compared with liquidating investments. Drawing on savings would have meant selling stocks to cover the upfront cost. “I don’t want to tie up too much cash in the house. I prefer to minimize immediate cash flow strain and keep savings for emergencies, so a line of credit made sense for this project,” he said.

Choosing between tapping savings and borrowing depends on your broader financial plan. If the renovation increases the home’s value or generates income, borrowing may be a reasonable option; if it’s mainly for personal enjoyment without a clear return, paying cash might be wiser to avoid taking on extra debt.

Prepare for unexpected costs

Francois Cote, CEO of a digital personal lender, emphasizes that renovation budgets often run over. “Planning ahead and building contingency into your budget is one of the most important steps, because projects usually exceed initial estimates,” he said. Homeowners who run short often turn to additional credit or credit cards to cover surprises, which can create extra debt and higher costs over time.

Loan products designed for home improvement can provide budget flexibility for renovations that increase property value, like kitchen or bathroom upgrades. “If you can afford the monthly payments and the renovation enhances your home’s value, financing may make sense,” Cote said. But he cautioned that every household’s circumstances differ: taking on debt when income is unstable or when your budget is already stretched can create serious risk.

Will the renovation add value to your property?

When deciding whether to finance a remodel, consider whether the work will increase your home’s resale value or deliver measurable savings. One lender reported an average home-improvement loan size and offers financing up to tens of thousands to cover major projects, with multi-year repayment options. Some providers partner with retailers to share financing costs, helping homeowners manage payments for bigger purchases like appliances or extensive renovations.

“Renovations are different from discretionary purchases that lose value quickly,” said a senior executive at a home-financing company. “Quality home improvements often pay off over the long term and can significantly improve everyday living.” He noted that common financed projects include decks, patios and growing interest in financing solar panel installations for long-term energy savings.

For Singh, the core question he discusses with clients is simple: will the renovation add value? “If the work won’t increase the property’s value or you won’t recoup the expense when you sell, it may not be worth taking on debt for it,” he said.

Read more about home loans:

• Mortgage Guide for Gen Z: The true costs of home ownership for young buyers
• Using a HELOC as an investment strategy: considerations and risks
• Secured loans vs. unsecured personal loans: choosing the right option
• Home-financing tips for different kinds of buyers