Basement Remodeling Loans: Are They Worth It?

Advertiser Disclosure

Student Loan Hero Advertiser Disclosure

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.

wine cellar interior in basement room with decorative wooden barrel and two red high chairs
Logo

We’ve got your back! Student Loan Hero is a completely free website 100% focused on helping student loan borrowers get the answers they need. Read more

How do we make money? It’s actually pretty simple. If you choose to check out and become a customer of any of the loan providers featured on our site, we get compensated for sending you their way. This helps pay for our amazing staff of writers (many of which are paying back student loans of their own!).

Bottom line: We’re here for you. So please learn all you can, email us with any questions, and feel free to visit or not visit any of the loan providers on our site. Read less

Is your basement a dark, dusty place where no one ventures? If you’re tired of your basement being useless space, you may be considering a basement remodel or renovation. Unfortunately, the costs of upgrading your basement can be substantial, and it may be difficult to fund a renovation out of pocket.

You may be tempted to borrow money for a basement upgrade, but taking a loan to remodel a basement often isn’t the best choice. Saving up to pay cash is a better approach because the interest on a basement renovation loan makes your project much more expensive.

If you’re not sure whether a basement remodel is worthwhile, or if you’re considering financing an upgrade to your underground living space despite the downsides, there’s a lot you need to know — and we’ve got the answers to your questions.

Are basement loans worth it?

According to the 2017 Remodeling Impact Report by the National Association of Realtors, the typical cost for a basement renovation is about $40,000. And the typical portion of that cost that you can recover when selling your home is about $25,000. It means you recover only 63% of what you spent, which doesn’t make the project a good investment.

And if you borrow money to upgrade your basement, the return on investment will be lower because you’ll pay a lot for a loan.

Our loan interest calculator shows how much your interest payments add to the cost of a basement remodel or renovation project, based on the amount you borrow and the interest rate you pay. If you borrow $40,000 at a 10.00% rate for a five-year term, you’d pay $850 in monthly payments with a total of $10,993 in interest. Your finished basement would cost you $50,993, which is more than double the typical amount you might recover when selling your home.

Because interest adds so much to the cost of a project that already has a negative return on investment, you typically shouldn’t take out a basement loan unless:

  • You have a major safety issue: If you need to fix a problem that jeopardizes the health or safety of your family or the structural integrity of your house, borrowing to renovate your basement is worth it.
  • You need the space: Consider whether you have a need or a want. If you’d like extra bedrooms for your kids, borrowing for a basement remodel probably isn’t worth it. But if you have a sick family member moving in who needs a quiet place to convalesce, the calculation is different.

If you must borrow, look for ways to keep costs as low as possible. You might be able to finance some materials at no interest or low interest from a home improvement store or might be able to reduce project costs by scaling down your plans or doing some of the work yourself.

Options for borrowing for basement remodels and renovations

If you’ve decided to borrow money because you have a pressing need to remodel or renovate your basement, shop carefully for the best source of financing. There are dedicated home improvement loans or loans intended specifically for finishing a basement, but you’ll have a wider selection of lenders if you opt for a general personal loan that allows you to use the money for anything you want.

You can choose from many personal loan lenders, including online lenders, local and community banks, credit unions, and peer-to-peer lenders. Some of the best options for home improvement loans include:

  • Avant personal loans, which allow you to borrow between $2,000 and $35,000 for a period of two to five years at APRs ranging from 9.95% to 35.99%.
  • Earnest personal loans, which allow you to borrow between $5,000 and $75,000 for a period of three to five years at APRs ranging from 5.49% to 18.24%.
  • SoFi personal loans, which allow you to borrow between $5,000 and $100,000 for a period of three to seven years at APRs ranging from 6.28% to 14.87%.

You also can check out this guide to some of the best personal loans available to compare rates and terms and find the most affordable basement remodeling loans.

Home equity loans for basement remodels

Another way to borrow money to remodel or renovate your basement by taking out a home equity loan or line of credit.

This kind of loan is an option only if you have equity in your home — many lenders won’t offer financing if the combined balance of your existing mortgage and the new loan would exceed 80% of your home’s value. To apply for a loan, you likely will need to pay for a home appraisal to ensure that you’re not borrowing too much.

Home equity loans usually have lower interest rates than personal loans or basement remodeling loans, and the interest might be tax-deductible if you itemize expenses on your returns.

The big downside is these products are secured loans with your home serving as collateral, so your asset could be foreclosed on if you can’t repay your loan. Many home equity loans also are repaid over a long time, so you pay a lot in total interest charges, even though the rate is low. Still, you may decide these risks are worth it to get lower rates and take advantage of the loan interest tax deduction.

How to choose financing for a basement remodel or renovation

The best way to finance your basement remodel or renovation is with cash. But if you borrow money for the project, you should take the minimum amount possible and compare loan terms carefully. As you evaluate financing options, consider:

  • The interest rate: The higher the rate, the more interest you’ll pay.
  • Fixed or variable APR: Variable interest rates may start out lower but can fluctuate. Fixed-rate loans charge the same interest and have the same monthly payment over time.
  • The loan amount: You don’t want to work with a lender that won’t give you a large enough loan or will require you to borrow more than necessary.
  • The repayment term: A longer repayment term reduces monthly payments but raises the total overall cost of your loan.
  • Qualification requirements: Many lenders will approve you for a loan only if you have a good credit score and proof of reliable income.

If you need to upgrade your basement and can’t wait until you’ve saved up cash to pay for it, searching diligently for the best lender is the most responsible financial decision you can make.

Interested in a personal loan?

Here are the top personal loan lenders of 2018!
LenderRates (APR)Loan Amount 
1 Includes AutoPay discount. Important Disclosures for SoFi.

SoFi Disclosures

  1. Personal LoansFixed rates from 6.58% APR to 14.87% APR (with AutoPay). Variable rates from 6.275% APR to 12.575% APR (with AutoPay). SoFi rate ranges are current as of July 16, 2018 and are subject to change without notice. Not all rates and amounts available in all states. See Personal Loan eligibility details. Not all applicants qualify for the lowest rate. If approved for a loan, to qualify for the lowest rate, you must have a responsible financial history and meet other conditions. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, years of professional experience, income and other factors. See APR examples and terms. Interest rates on variable rate loans are capped at 14.95%. Lowest variable rate of 6.275% APR assumes current 1-month LIBOR rate of 2.10% plus 4.175% margin minus 0.25% AutoPay discount. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account.
  2. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)

2 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  • Personal Loan Rate DisclosureFixed interest rates from 6.49% – 19.49% (6.49% – 19.49% APR) based on applicable terms. Lowest rates range from 5.99%-18.99% (5.99%-18.99% APR), are for eligible applicants, require a 3-year repayment term, and include our Loyalty and Automatic Payment Discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
  1. Loyalty Discount: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower has a qualifying account in existence with us at the time the borrower has submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, student loans or other personal loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI and VT. This discount will be reflected in the interest rate and Annual Percentage Rate (APR) disclosed in the Truth-In-Lending Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan, and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  2. Automatic Payment Discount: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their Citizens Bank Personal Loan during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account two or more times within any 12-month period, the borrower will no longer be eligible for this discount.

* Important Disclosures for Upgrade Bank.

Upgrade Bank Disclosures

  • Personal Loan Rate DisclosureFixed interest rates from 6.49% – 19.49% (6.49% – 19.49% APR) based on applicable terms. Lowest rates range from 5.99%-18.99% (5.99%-18.99% APR), are for eligible applicants, require a 3-year repayment term, and include our Loyalty and Automatic Payment Discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
  1. Loyalty Discount: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower has a qualifying account in existence with us at the time the borrower has submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, student loans or other personal loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI and VT. This discount will be reflected in the interest rate and Annual Percentage Rate (APR) disclosed in the Truth-In-Lending Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan, and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  2. Automatic Payment Discount: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their Citizens Bank Personal Loan during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account two or more times within any 12-month period, the borrower will no longer be eligible for this discount.
7.73% – 29.99%$1,000 - $50,000
Check rate nowon SLH's secure site
6.28% – 14.87%1$5,000 - $100,000
Check rate nowon SLH's secure site
6.87% – 35.97%*$1,000 - $50,000Visit Upgrade
8.00% – 25.00%$5,000 - $35,000
Check rate nowon SLH's secure site
4.99% – 29.99%$10,000 - $35,000Visit FreedomPlus
5.99% – 18.99%2$5,000 - $50,000Visit Citizens
15.49% – 34.49%$2,000 - $25,000Visit LendingPoint
5.99% – 35.89%$1,000 - $40,000Visit LendingClub
5.49% – 18.24%$5,000 - $75,000Visit Earnest
9.95% – 35.99%$2,000 - $35,000Visit Avant
Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.