Granite countertops, brand new cabinets, hardwood floors, landscaping – do all these home improvements seem like an unattainable dream? Not to worry — whether you are considering a home renovation to increase the value of your home, to update the look of your home, to create more room, to save energy, or to make your home safer there are numerous ways to finance your project. Keep reading for some financing suggestions for a variety of home renovation scenarios.
Small Renovation Projects
For smaller renovation projects, especially if you are going to be completing the work yourself, my suggestion is to first consider using your own resources. To pay for materials you can use your credit card, but try to stay away from carrying the balance for a long period of time since interest rates can be quite high (18% and over). A personal loan (where you pay regular payments of principal and interest for a set period of time) is another option that you may want to consider since the interest rate will usually be lower than on a credit card. The term for a personal loan is normally one to five years, and you have the option of a fixed or variable rate.
Ongoing or Long-term Renovation Projects
A personal line of credit is a fantastic option for ongoing or long-term renovations. The benefits include: being able to access your funds at any time, monthly statements to help track expenses, lower interest rates than credit cards, interest being charged only on funds used each month, and the ability to access any remaining funds after you’ve paid off your balance without the hassle of having to re-apply. Secured lines of credit and home equity loans are similar to a personal line of credit. They offer all the benefits of a line of credit, but the difference is that they are secured by your home’s equity (usually limited to 80% of your home’s value). While initial set-up costs usually apply, these two options can save you money since they offer preferred interest rates.
Extensive Renovation Projects
For extensive renovations, like a home addition in Toronto, mortgage refinancing is a good option since it allows you to spread repayment over a long period at mortgage interest rates, which are normally significantly lower than credit card or personal loan rates. By refinancing your mortgage, you can borrow up to 80% of your home’s appraised value (minus any remaining mortgage balance). Similar to the options I explained above, initial set-up costs including legal and appraisal fees often apply.
Renovations for a Home You Have Not Yet Purchased
Are you planning to do some major renovations for a home you’re about to purchase? In that case, you should consider the option of financing the project(s) by adding the estimated costs to your existing mortgage at the time of purchase.
Energy-Saving or “Green” Renovations
If you’re planning an energy-saving home improvement project, you should look into whether you qualify for any Canadian renovation grants, rebates, incentives, subsidies or tax credits which are available from the federal and provincial governments and local utilities. Be sure to check with your municipal office or look in the Blue Pages of your phone book, under “information on Federal Programs and Services.” Additionally, Canada Mortgage and Housing Corporation (CMHC) offers programs for low-income Canadians, individuals with disabilities and Aboriginal Canadians.
Take a look at some examples listed below:
- CMHC Mortgage Loan Insurance for Energy-Efficient Homes
- ecoENERGY Retrofit — Homes
- Provincial and Municipal Entities Offering Grants and Incentives
- Rebates and Incentives for Selected ENERGY STAR® Qualified Products in Canada
Ensuring that you have the right type of financing in place for a major renovation is important. It’s a good idea to have a chat with a credit specialist at your chosen bank, who can recommend the best solution for your needs. It’s also important to remember that a dream renovation can turn into a nightmare if you over extend yourself financially.
If you have questions about what renovations will bring the most value for your home, feel free to contact me here.