Whether you’re paying for a new roof, backyard revamps, or a kitchen upgrade, it can be overwhelming trying to figure out how to pay for this large expense. Having a new shed, deck, or fence will not only make your backyard look amazing, but will also increase your home’s value. As a financial advisor, I can offer you these valuable tips for finding ways to pay for your home’s renovation.
Budget, budget, and more budgeting!
Of course, this is an easy tip, but how many of you develop a budgeting plan and don’t follow through? We’re all guilty of this, but if you want to renovate your home, it’s best to plan how much money to put aside so your bank account is prepared to pay off this large expense. Budget everything from your monthly housing costs, to your phone bill, to your grocery bills, and of course your “fun” money. See if there are any gaps in your budget that you can pull from and put it towards your home renovations instead.
Open up a tax-free savings account
The best part of a tax-free savings account is, well… it’s tax-free! It doesn’t cost you anything to put money into. and take it out of, the account. That being said, make sure you have the self-control not to spend the money if you’re putting off your home renovation. Practice that self-control so you can consistently keep putting money into your TFSA. You never know when your pool liner may tear or your furnace may have its final days.
If you plan on saving your money for a home renovation well in the future, then an RRSP may be a good option for you. The difference is that you do get taxed when you take money out of your account. However, you will make money by having the money invested in your account. It builds up over time which makes it a good option if you don’t plan on doing a major home renovation for years to come. A lot of people make their homes more accessible so they can age in place, which makes this account their best option.
Take out equity on your home
Did you know that you can take money from your home equity and put it towards paying for your renovation? This is a fantastic way to have more leeway to pay off this expense.
Home equity is the difference between what’s left owing on your mortgage and the value of your home (done through a formal home assessment). If you’ve owned your home for more than a few years and have made regular mortgage payments, there’s a good chance you’ll have built-up equity that you can take advantage of. Home equity loans tend to carry a fairly low-interest rate, making their repayment of them more manageable than other loans. You certainly wouldn’t want to rack up any credit card debt for your summer project…interest rates on those can be upwards of 17% to even 25%.
For the sudden summer renovation
If you haven’t followed the tips above on ways to budget and save up for home renovations, don’t sweat. If you don’t have any money saved up for an urgent home renovation, you can take out a loan from a private lender or your bank. Hopefully, you don’t have a large outstanding debt so you qualify for lower interest rates. It’s best to pay back your loan as soon as you can to reduce the lingering interest fees building up with your lender.
Sure, you can take out a loan to renovate your kitchen to be more modern or take out a loan to fully finish your basement, but follow the tips above before you dive in deep and add more debt to your roster. This is where budgeting plays a key factor. If you don’t “NEED” the renovation, but just “WANT” it to be done, then it’s time to sit down and rethink how you plan on paying for it all.
Some advice that will help you stick to your budget
- If you’re using a contractor, get at least 3 estimates in writing and book their services well in advance as summer is the most popular renovation season
- Draw up proper designs or blueprints – don’t forget to factor in any electrical or plumbing needs as well
- Apply for all and any local building permits
- Don’t start digging until you’ve gotten the go-ahead – especially for natural gas, hydro or septic considerations
- Notify your insurance company as your renovation may impact your policy
- Source out building materials, tool rentals, or décor items you will need
- Set up a budget, then add 15% to 20% for those inevitable extra expenses that will crop up
- Do a cost analysis – for example, an inground pool may be too costly once you factor in ongoing maintenance, repairs, hydro costs, and so on, and may not add to your home’s value when you sell.
- Once you’ve got a design/plan in place, be sure to stick to it. Last-minute changes and additions can throw you off course, delay the project, and result in going way over budget.
Work with a mortgage broker and financial advisor to make sure you’re on the right track
Does your summer renovation project need help to get it going? If you’re thinking that you’d like to take advantage of a home equity loan to financially fuel your project, be sure to connect with me. As an experienced, certified mortgage broker in Barrie, it’s my job to help you determine whether or not a home equity take-out is best for you and walk you through the process so there are no surprises. Contact me today at (705) 315-0516 to learn about how I can help so you can get started with that important project and get on with your summer plans.