From the scary headlines about a “mortgage meltdown”, you’d think getting a home equity loan these days was harder than finding a scotch and soda in Riyadh. But in fact, homeowners with good credit are having no trouble securing money for renovations. And interest rates have even come down slightly in the past 12 months. They only change is that banks have stopped handing out cash on crazy terms. You’re now required to document your income, for instance, and you must actually have equity in your house to borrow against. Here, the pros and cons of the three most common loans for funding renovations.

Home Equity Loan

This is usually the best option if you have a lot of equity in your house or if the amount you need to borrow is fairly small compared with the home’s value – say, $50,000 on a $500,000 property. That’s because you can negotiate a loan with no closing costs or fees, more than offsetting the fact that you will pay a slightly higher interest rate than you would if you refinanced your mortgage. Banks are offering home equity loans to borrowers with good credit for just below the prime rate, which means you’ll pay around 7 percent if you get an adjustable loan, and anywhere form 7.25 percent to 9 percent if you get a fixed rate. The lower, floating rate looks attractive right now because the Federal Reserve seems more inclined to cut rates than hike them, and that reduction will be passed on to borrowers. What’s more it’s a line of credit, you can draw on the money during construction as you need it and pay interest on that amount only.

Mortgage Refinance

If you need to borrow more than $200,000 on that $500,000 house, the best approach is usually to refinance your mortgage, taking out a loan that’s big enough to cover the cost of the renovation. At around 6 percent, fixed-rate mortgages are on the low side, by historical standards, and the interest is deductible. One big exception to this advice: if you were smart enough to have locked in a 30-year mortgage in 2003 or 2004, when homeowners got once-a-generation rates as low as 5.25 percent, do anything you can to protect that rate. In that case, consider taking a home equity loan or even selling other investments instead of borrowing. Also, keep in mind that fees and interest rates are negotiable, so press your bank for the best possible deal and don’t be afraid to shop around. To crunch the numbers that apply to your specific situation, check out the calculators at bankrate.com

Construction Loan

For really big jobs, you’ll need to take out a construction loan. The tipping point is when your existing mortgage plus the new loan add up to more than the value of the house. The interest rate on a construction loan is typically a point above the prime rate, which means you’ll pay about 8.25 percent, plus a down payment of 20 percent of what the house will be worth once you complete the work. Why is a construction loan so much more expensive than other types of loans? Because it’s risky for the bank. The collateral isn’t even built yet. After the job is done, you’ll need to refinance into a new, permanent mortgage. Steer clear of “one-stop shopping” options known as construction-to-permanent loans. You’ll usually save on fees and interest by shopping for permanent financing at the end of the construction job instead of doing it all up-front. And finally, before tackling a job this size, keep in mid that it is a buyer’s market, so you might be better off looking for a new, larger house.