Q.Would it be better to use a home equity loan to remodel our home or to refinance our mortgage? We have a $131,000 mortgage with an interest rate of 5.37%. We'd like to add on to our kitchen at an estimated cost of $60,000.

A.In the long run, a 15-year, fixed-rate refinance would be your best bet. You would end up saving a lot on interest payments.

You have a great interest rate at 5.37%, and you really don't want to lose that unless you can do a cash-out refinancing without having to pay too much more.

Interest rates have been very volatile this year, but you could probably refinance into a 15-year, fixed-rate loan for less than 5.75% and know exactly what your payments will be until your home is paid off.

The next best option would be a home equity line of credit. They have no setup costs, flexible repayment options and you'd probably pay an initial rate of about 6%, although these are adjustable-rate loans.

A traditional home equity loan is your worst option because it would cost about 8% and come with all sorts of closing costs and fees.

We suggest you get quotes for a refinancing and home equity line of credit, then use our mortgage calculators to help you find the best deal.

Two final thoughts.

Remodeling projects -- and especially kitchen redos -- usually exceed estimates, sometimes by quite a bit. Be sure that your $60,000 includes a cushion that can handle unwanted surprises.

With home prices falling in many parts of the country home improvements won't increase the value of your home as much as they did a few years ago. You'll see what we mean if you look at our list of the 10 most valuable home improvements.