According to the National Association of Realtors, the continuation of a soft market is predicted for existing home sales in the coming months. This comes as bad news for people who are considering selling their homes in the near future.

Gone are the days when potential buyers would fight over every listing on the market, driving up prices in the process. Now homes may linger on the market for months, fetching far lower prices.

Because buying a new home typically requires first selling your current home, many people who want to “move up” to a bigger or nicer home are choosing to stay in their current homes and upgrade them rather than put them on the market.

Home improvements offer many benefits: they not only make your home more comfortable, but can also be a prudent investment. Popular projects include: kitchen remodels, bathroom additions, deck additions, siding and window replacement—all improvements that, in addition to making a home more livable, may actually increase the value of your home.

But with the economy being as tough as it is lately, where will people find the money to pay for their improvements? A popular option is to tap into the equity in the very house you're planning to fix up. “When it comes to funding home improvement projects, consumers with equity in their homes have multiple options, such as taking out a home-equity loan, setting up a home-equity line of credit or refinancing an existing mortgage,” says Stephen Semprevivo, president of LowerMyBills.com, a free online service that can help consumers compare low rates on monthly bills.

Here is a quick guide to financing choices:

Home-Equity Loan: With a home-equity loan you take out one lump some of money based on the equity you already have in your home. The amount you borrow and the interest rate are fixed at the start of the loan. These loans typically last from 5 to 15 years.

Home-Equity Line of Credit: Like a credit card, a home-equity line of credit functions as an open line of credit, only it is borrowed against your house like a second mortgage. The benefits of using a home-equity line of credit instead of a credit card are that the interest rate for a home-equity line of credit is almost always lower than that of a credit card and the interest you pay is usually tax deductible.

Cash-Out Refinance: A cash-out refinance allows you to refinance your mortgage for more than you currently owe, leaving cash on the table that you can put toward your home improvements. Unlike a home-equity line of credit or home-equity loan, a cash-out refinance does not require taking on the additional burden of a second loan.

Don't want to take the gamble of borrowing against your house? Don't despair. “Homeowners that don't have a lot of equity in their homes, or don't want to tap into that equity, may find that simply refinancing their homes can help offset home improvement costs,” says Semprevivo.

Interest rates are near record lows. If you bought your home a few years ago you may well be able to refinance at a lower rate. That lower rate can yield substantial savings that can go a long way in paying off your home improvement bills.

Want to find out which option offers the best scenario for you? There are benefits and drawbacks to any home loan, so it's a good idea to discuss your options with a trusted financial professional.

Whether you go with a home-equity loan, a home-equity line of credit or a refinance, your interest payments will likely be tax deductible, and no matter which financing option you choose, upgrading your home can add value and comfort.