Wondering how interest rates affect home remodeling? Do you think about making improvements to your house? Recent changes in interest rates, along with continually rising construction costs, are giving homeowners more reasons to review future projects more critically.

On September 16th, 2026, the Federal Reserve increased the target federal funds rate by 0.25%, placing the rate at 3.75-4.00%. According to the Federal Reserve, while inflation remains high, the intent behind the action is to provide support to move back toward its long-term inflation goal of 2%.

How Do Interest Rates Affect Home Remodeling?

Although the federal funds rate does not directly establish how many dollars you spend on a kitchen renovation, or a bathroom remodel, or a home addition, interest rates influence your borrowing costs across the entire economy.

When interest rates go up, it becomes even more costly to finance a large home improvement project. Borrowers who utilize home equity loans, HELOCs, personal loans, and other forms of funding may end up paying more in interest during the lifetime of the project. When interest rates are high, borrowers are often more hesitant to borrow money to fund a large expense.

Remodeling costs, however, are influenced by many things, including but not limited to interest rates. All other factors such as materials, labor, transportation, and other construction-related items contribute to the ultimate cost of your home improvement project.

Construction Costs Are Still Under Pressure

According to the National Association of Home Builders, in September, builders remain concerned about higher raw materials costs, increasing energy costs, labor shortages, and elevated construction costs. NAHB builder sentiment in the market for new single-family residential homes declined 3 points to 32 in September, which was its lowest point since September 2025. That being said, there is no indication that each remodeling project will automatically become more expensive, nor are there indications that construction prices will increase by some predetermined amount. Construction costs can vary greatly from one project to another based upon the type of project you wish to undertake, the materials you choose, labor requirements, and local market conditions.

Therefore, it would be prudent for those planning a renovation to factor in potential further cost pressures. If you want a deeper look at how labor costs have shifted, check out our post on Labor Costs of Past & Present.

Should You Remodel Now or Wait?

If you were already contemplating a kitchen renovation, bathroom remodel, addition or some other significant home improvement project, now could be a great opportunity to get a realistic estimate and see what your options are.

Obtaining a quote does not necessarily mean you have to commence construction immediately. Understanding your present-day labor and material costs can assist in determining what your budget will allow and if now is the best time for your household to proceed with the project. 

Waiting at times is simply the correct decision, especially if you need more time to build up savings or finalize your plans. There's no certainty that waiting will result in a reduced total cost for the project.

References

Federal Reserve Board Federal Reserve issues FOMC statement
Federal Reserve Board Economy at a Glance - Policy Rate
NAHB Builder Sentiment Falls on Higher Interest Rates and Costs