With Interest Rates Dropping, Is Now a Good Time to Renovate?

On September 17, 2025, the Federal Reserve approved a quarter percentage point cut to its benchmark interest rate—the first reduction in nine months, with signals that more cuts could follow by year’s end. With rates now in the 4.00-4.25% range and discussion of additional loosening ahead, many homeowners are weighing whether it’s the moment to move forward with home improvements.

The response from homeowners has been immediate and noticeable. Applications for refinancing have already spiked—mortgage industry data now shows a 58% week-over-week increase, reflecting a renewed appetite for financial moves that could lead to monthly savings. 

Beyond refinancing your mortgage, there’s growing conversation among both professionals and homeowners about whether now is the right time to seek financing for renovations, especially for projects with five- or six-figure budgets. Should you act while rates are falling, or wait? The decision is nuanced, but there are clear financial considerations that can help you determine if now is a good time to renovate. 

Understanding how interest cuts impact renovation financing rates

When the Federal Reserve lowers rates, the cost of borrowing typically follows, though not always right away. It’s important to note that while a rate cut from the Fed usually leads lenders to adjust their rates, the final terms are still set at the lender’s discretion. Your actual offer can vary by loan type, credit profile, and each lender’s policies. 

How a small rate change can impact your renovation financing

It’s important to note that a slight rate cut, on its own, is not the only factor to weigh when deciding whether it’s the right time to renovate. To put the change into perspective: Suppose you take out a $70,000 home improvement loan at a 7% annual interest rate, to be repaid over seven years. Your monthly payment would be about $1,056.49. If your rate drops a quarter percentage point, to 6.75%, your monthly payment decreases only to $1,047.95. 

Over the life of the loan, this leads to a total savings of $716.87. While this difference is meaningful for many households, it’s a reminder that you need to consider the nuances of your broader financial picture before letting interest rate changes dictate your remodeling plans.

Choosing between fixed versus variable rate loans 

As detailed in Block’s guides to financing home additions, kitchens, and bathrooms,, there are numerous avenues to acquiring the needed loans to finance your renovation. They tend to fall into one of two buckets: fixed-rate or variable rates. 

Fixed-rate loans lock your interest rate for the full term, delivering payment predictability. Common examples include home equity loans, fixed-rate home improvement loans, and cash-out refinances. If you value certainty and are especially risk-averse, a fixed-rate option can secure today’s terms for years to come.

Variable-rate financing—most often a HELOC or another adjustable-rate product—typically starts with a lower introductory rate and then resets based on a benchmark index. Notably, as market rates move, your payment can rise or fall. 

With some economists expecting further rate cuts this year, many homeowners value the flexibility of HELOC and variable-rate financing—you can access funds when you need them and potentially benefit from additional rate reductions. However, there is also some level of risk: if market rates rise instead, so could your subsequent payments. 

Is one option better than the other at this current time? There’s no universal answer. No one can predict the exact path of rates. The choice comes down to your risk tolerance, time horizon, and how you plan to use the funds.

Choose fixed-rate if:

• You want stable, level payments that won’t change.
• You’re financing a large project you’ll carry for many years.
• Your budget is tight and payment spikes would be stressful.

Choose variable-rate if:

• You’ll draw funds in stages and want interest-only payments during the draw period.
• You expect to pay off or refinance within a few years.
• You believe rates may keep easing and want exposure to potential declines.

Other financial factors to consider when timing your renovation

The cost of materials and appliances may increase in the near future

Changes in interest rates also are just one part of the puzzle when it comes to your home project. Factors such as tariffs and supply chain disruptions have contributed to rising costs for construction and renovation materials throughout 2025, and broad-reaching inflation has only added to these increases. 

What does this mean for your renovation planning? In short, costs in six months could potentially be higher than they are today. And if a wave of homeowners acts on the recent interest rate reductions, heightened demand could push prices higher still.

Here’s how to plan for future cost spikes:

• Lock in major appliances and fixture orders early, if possible.
• Build a contingency into your renovation budget to account for potential price increases during the project. We always recommend 10-15% for contingency, and even up to 20% in times of uncertainty.
• Consult with your contractor about sourcing locally, which may help limit the impact of shipping delays or international fees.
• Identify the features or finishes where you’d be comfortable making trade-offs to stay within budget.

Your personal credit score

Your credit score will play a critical role in what rates you’re offered and which loan products you’ll qualify for. Even as lenders respond to lower Fed rates, they continue to look for strong credit histories—especially as some consumer credit scores have fallen slightly over the past year. Improving your score in advance of applying for financing can help you secure a better deal.

Improve your credit by:

• Obtaining your credit report and checking for errors.
• Paying down balances on high-interest debts if you can.
• Avoiding opening new credit accounts in the months before applying for a loan.
• Making all payments on time to prevent score drops.

Whether contractors face high demand

Seasonality plays a significant role in contractor availability and pricing, as detailed in Block’s guide, What's the Best Time of the Year to Renovate?. Fall tends to see somewhat lower demand compared to the spring and summer rush. In contrast, winter is often when contractors have the most availability—and some are willing to negotiate for projects that can help keep their crews working through the off-season. If you’re flexible on timing, locking in your loan and contractor agreement now—but scheduling your actual project start for the slower months—could help you secure a more competitive rate.

How to plan for fluctuations in demand: 

• Speak with contractors about their schedules for the next several months.
• Ask if there are discounts for projects scheduled during their slow season.
• Consider signing contracts early to “lock in” preferred rates ahead of potential demand spikes.

The state of your emergency funds 

An emergency fund is your first line of defense against unexpected costs—during renovation or beyond. While lower interest rates reduce borrowing costs, taking on a loan is still a commitment. Before proceeding, ensure you have enough savings to cover surprise expenses, both related and unrelated to your renovation project.

Plan for unexpected costs by:

• Setting a separate “contingency cushion” in your budget specifically for unexpected renovation costs.
• Estimating how much you’d need to cover three to six months of essentials.
• Building additional savings into your renovation timeline if needed.
• Keeping your emergency fund in a high-yield savings account to maximize interest earnings while maintaining easy access to your money.

Ready to secure renovation financing now? Here’s next steps

Before applying for financing, it’s useful to start with a realistic, ballpark figure for your project costs. This helps ensure that you’re borrowing the right amount and gives lenders a clear reference point for your application.

• Begin by estimating your total renovation budget, including materials, labor, permits, and a contingency for unexpected costs.
• Gather basic financial documents such as pay stubs, tax returns, and information on your existing debts.
• Check your credit score and address any discrepancies or areas for improvement before you apply.
• Compare loan options from a range of lenders to find rates and terms that match your financial goals.
• Talk with your contractor about payment schedules or project milestones that might affect how your funds are disbursed.

Not sure where to begin? Block's renovation consultants can help you create an actionable plan, refine your budget, and connect you with reputable lenders who understand the needs of homeowners taking on renovation projects.

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Get a better understanding of your project budget with Block

The strongest renovation decisions are rooted in clarity around your project’s true costs. Before you commit to loans or contractor agreements, it’s worth mapping out your vision and budget side by side. 

With Block’s free Renovation Studio tool, you can visualize your design, test out different material options, and receive instant, customized cost estimates—giving you a transparent look at how each choice shapes your total budget.

The Studio is built for homeowners who want to feel prepared and confident before making big financial or design decisions. You can play with different layouts and finishing options while seeing real-time updates to your cost projections.

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