What is the Smartest Way to Pay for a Home Extension?

February 8, 2023

In this highlight, we discuss the smartest way to pay for a home extension.


Making the decision to add an extension to your home is a big one. Whether you should liquidate your after-tax account or take out a home equity loan to finance the construction is not an easy question to answer. There are several things you need to think about before making this decision.

One factor to consider is how easy it is to access your after-tax money. If the extension is going to cost $100,000 and you have an after-tax account worth $150,000, it might be more cost-effective to use that money instead of taking out a home equity loan, which would come with a higher interest rate. However, you also need to factor in any taxes you would need to pay to access that money.

Another factor to consider is the cost of taking on debt. While debt can be your friend in certain circumstances, such as when you have a good cash reserve and a high income, it can also be nerve-wracking. If you have a good cash reserve, it may make sense to use debt as a bridge to get you through the renovation until you have more money coming in, such as from a bonus or a land sale.

It’s also important to consider the opportunity cost of liquidating your assets. If you take $100,000 out of the market to pay for the renovation, that’s $100,000 that’s not working for you. You need to weigh the benefits of the renovation against the costs of paying for it.

Finally, consider the purpose of the renovation. If it’s necessary to accommodate a growing family, then it may be worth taking the leap. But if it’s just for a patio you want to enjoy more, you may want to save up for it instead of taking on debt.

In conclusion, the decision of whether to liquidate your after-tax account or take out a home equity loan to finance a home extension is a complex one that requires careful consideration of several factors, including access to your after-tax money, the cost of taking on debt, the opportunity cost of liquidating your assets, and the purpose of the renovation.

To learn more, check out our free resources here.



Most Recent Episodes

Financial Advisors React to Money Advice from ChatGPT

Will ChatGPT be your new financial advisor? In this react episode, we’ll break down some money advice from ChatGPT and compare it to our own thoughts and opinions. Enjoy the Show? Sign up for the Financial Order of Operation (FOO) Online Course! Sign up for our Know...

Financial Planning 101 (By Age) 2023 Edition

Throughout every decade, there are different areas of your financial life that come in and out of focus. In this episode, we'll discuss what you need to focus on by age, pitfalls to watch out for, and how to know you're doing it right. In this episode, you'll learn:...

Is the 2023 Housing Crash Around the Corner?

Housing prices skyrocketed after the pandemic to all-time highs, and mortgage rates have more than doubled since 2020. Homes are harder to purchase for more Americans, which means it’s more important than ever to make sure you are ready to buy before purchasing. In...

Watch This Before Rebalancing Your Investment Portfolio!

85% of Americans don’t rebalance their 401(k). Are they making a huge mistake? In this episode, we’ll discuss the “why” behind rebalancing, how to do it, and the data on whether or not rebalancing can increase your return. In this episode, you’ll learn: What...

Don’t Make This HUGE 401(k) Mistake!

Americans are making a HUGE mistake in their 401(k) that could cost them thousands by retirement. We’ll talk about why this is happening and how you can avoid making the same mistake in this Q&A episode! For more information on how to make the most out of every...

Alex Hormozi’s Top Money Advice! (Financial Advisors React)

In this episode, we react to Alex Hormozi's financial advice. Enjoy the Show? Sign up for the Financial Order of Operation (FOO) Online Course! Sign up for our Know Your Number Course! Check out our Net Worth Tool! Get FREE downloads full of financial advice from...

Everything You Need to Know About Finances in Your 20s

In this episode, we discuss everything you need to know about finances in your twenties. In this episode, you’ll learn: The top financial advice for your twenties How to start building wealth and the steps you should take Enjoy the Show? Sign up for the Financial...

The Most Valuable Asset in Building Wealth!

This episode will show you how to maximize the most valuable resource you have - starting right at this moment. What is it, you may ask? It’s TIME. If you give your money time to grow, you’ll be amazed at how much your dollars can become - it’s incredible! How wild is...