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Renovating your home? Use Your Mortgage & Home Equity!

Renovating your home? Use Your Mortgage & Home Equity!

a happy couple with their dog renovating their house

a happy couple who secured a mortgage in Barrie with their dog renovating their house

There are a variety of reasons you may have decided to renovate your house. Perhaps you’re looking to make your house more energy efficient by replacing the windows. Maybe your deck is out of shape and needs repairs. Or you’re simply tired of looking at your dated kitchen and need to spice things up. Whatever the reason may be, home renovations are a great way to customize your living space and to increase your home’s value for the future sale of your house.

You may already have a few sweet renovation ideas in your mind, but the real question isn’t ‘what needs to be done?’ it’s ‘how will you afford these renovations?’. Luckily in Canada, you have a range of options to help you finance home renovations including leveraging your mortgage. Whether it’s a loan, line of credit, or through your savings, these are a few ways you can finance your home renovations.

Before we jump into a home renovation…

It’s important to consider how your renovation will impact the value of your house. If you plan on living in your house for a long time, customizing your home to make it your very own is a good thing. However, if you’re renovating your house to get it ready to list, it’s a good idea to make updates that will appeal to buyers. In this case, make the essential updates and avoid doing crazy changes such as painting the walls a wacky colour. Do your research and find out what buyers are looking for before you make any major changes. In most cases, home renovations typically add value to a house, depending on what the project is. Think beforehand about how your project will impact your house’s value.

It’s also smart to consider how long the project will take you. If you’re hiring a team of professionals to come in and do the project for you, they will usually give you a timeframe around how long it will take. However, if you’re doing the project yourself, be prepared for how much work it will be and how long it will take. Nothing is worse than getting halfway through a renovation and because you got tired, your dreamy spa bathroom ends up unfinished with plywood floors for an extended period of time.

Your financing options

Before getting started on any big renovations, you must look into how much the project will cost you. Below are a few different financing options for you to consider when taking on a home renovation.

  • Use your savings or credit

If you have savings set aside or available credit to finance a small renovation, that’s one simple way of financing your home renovation. Especially if you’re doing the work yourself, using credit is a good way to pay for the materials you need. Just be wary of how long it may take you to pay off your credit afterward. (You want to avoid those high interest rates!).

  • Secure a home remodel or home repair loan

Home improvement loans are an unsecured personal loan that is offered by banks and some mortgage lenders. With these kinds of loans, you don’t need to use your property as collateral to qualify. Just like other loans, your qualification is based on your credit score and they are usually quick to receive if you do qualify. If you have a window replacement or a bathroom renovation in mind they are perfect for small to medium-sized renovation projects.

However, because these are unsecured loans, it usually means the repayment term is shorter and interest rates are higher. So, be sure to compare your loan options to find out which one is the best value for you to take on.

  • Use a home equity line of credit (HELOC)

HELOCs are a secured loan that is backed by your home. Your house is up for collateral but because it’s a secured type of loan you can qualify for a lower interest rate. What’s so great about HELOCs is that it’s considered revolving credit. This means you can take what you need when you need it.

A couple of things to be cautious of with HELOC’s though is that if you don’t make your payments on time, you risk losing your house. Also, HELOCs have variable interest rates, so your payments could increase depending on the market conditions. Before even considering a HELOC, you’ll need to ensure that you have at least 15% equity in your house in order to qualify to use it.

  • Secure a Home equity loan

Also known as a second mortgage, this type of loan is similar to a home improvement loan. This loan is paid out in a lump sum you can repay in fixed monthly payments over several years. Unlike HELOCs, interest rates are fixed, meaning you don’t need to worry about payments increasing due to market changes. However, there is less flexibility with your payments compared to a HELOC.

If you know exactly how much you need to fund your renovation, this may be a great option for you as you’ll receive all the money you need upfront. But just like with any type of loan, missing payments will hurt you financially. Because you are putting your house up for collateral, you do risk the foreclosure of your house if you don’t make payments.

  • Refinance your mortgage

When completing any major home renovations, refinancing your mortgage may offer great advantages. For one, you are more likely to access a better interest rate compared to using a credit card or home improvement loan. The repayment term is spread over a longer period of time as well. On the other hand, though, there will be more fees upfront you will need to pay.

  • Obtain a grant or rebate

Depending on what your home renovation entails, you may be eligible for a government loan or grant. If you can qualify for any government home renovation loans, you could save yourself a lot of money. In Ontario, there is the Ontario Renovates Program. If your renovation involves improving accessibility, energy efficiency, or safety, you could qualify. It’s good to do some research and find out if you qualify for any other grants or rebates as well. A little extra funding here or there doesn’t hurt in the world of home renovation.

Do you need help deciding which financing option works best for you? I can help!

With my experience as both a mortgage broker and financial advisor, I can help you weigh the pros and cons so you can make the most informed decision. Don’t wait. Get your renovation started by giving me a call today to set up a virtual consultation, 705-315-0516. Together we’ll take a deep dive into the options available to you, and outline a financial plan to cover your renovation costs accordingly.

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