More and more homeowners are choosing to stay in their current homes and renovate them as per their ever-changing requirements. Doing renovations can improve the look and feel of your house and may increase its value. You can have all the great renovation ideas but financing the renovations would be the biggest challenge for most of the Canadians.
You can have many different financing options for home renovations and it’s always better to assess every available option before you decide which is best for you.
Note: It’s always a good idea to put aside some money for unexpected maintenance and improvement costs.
Here are some of the available options to pay for home renovations.
Personal Savings
You can fund the renovations, using your personal savings without borrowing any additional debt. Paying with personal savings means that you don’t have to make any monthly payments, save on interest costs & avoid any loan approval process.
Personal loan
A personal loan typically has a lower interest rate than a credit card. You repay it in regular payments over a set period, usually 1 to 5 years. You need to reapply if you want to re-borrow.
Personal line of credit
You can access available funds as and when you need them and you pay interest on the amount you owe. Interest rates for a personal line of credit are lower than on a credit card. You can re-borrow funds (within the limit) without reapplying.
It can be a great option if you’re planning to sell off your home after the renovation and be able to pay off the line of credit from the proceeds of the sale.
Home Equity Line of Credit
Similar to the personal line of credit but with a better interest rate and is secured against your home equity. Subject to additional cost like set-up or legal fees
Property Value - $400,000
Current Mortgage Balance - $200,000
Available Equity at 80% - $320,000
Amount you can borrow – $320,000-$200,000 = $120,000
Mostly it is taken out as a second mortgage to your house as it can free up significant amount of the equity in your home.
Get a second mortgage
It can be an alternative to mortgage refinance, where you are borrowing against the equity of your home and will give you lump sum amount of money. Subject to a set up cost. Unlike a mortgage refinance, you will have to make two separate monthly payments.
Mortgage refinance
You can access your home equity by refinancing your current mortgage at a better interest rate than a credit card or personal loan, but there can be some set-up costs.
If you have a considerable amount of equity in your home with good credit, it can a great option as considering the fact that the mortgage interest rates are at historical low levels.
Purchase Plus Improvements
If you’re planning to buy a home that needs improvements or you want to renovate as per your family needs where your renovation cost will get rolled into your mortgage itself. You will have a make one single monthly mortgage payment to live into your dream house.
Store Credit Cards
If you’re planning to buy the majority of required materials for renovations from big stores like Home Depot or Lowe’s, you can take the advantage of their store credit cards. You can get a benefit of interest free period and pay on monthly payments.
Grant and rebate options for energy efficiency
Federal, provincial and municipal governments and local utilities may offer grants and rebates for energy-saving renovations. For example, CMHC Green Home offers a premium refund of up to 25%. You may be eligible if you buy, build or renovate for energy efficiency using CMHC-insured financing.
If you are planning to do home improvements / renovations, talk to a Licensed Mortgage Professional who can suggest you the best available option, after analyzing your financial situation.
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