How to Finance Home Renovations

You love your home, but there is always something that could just be better. Each year, millions of Canadians upgrade and improve the houses they live in. Whether it is the kitchen, adding an extension, or making the bathroom a luxurious oasis, updating the place we spend the majority of our time can be very rewarding. The offset to the reward is the cost and how to pay for the improvements. You know what you want, but you don’t know how to finance it. Fear not! Here, I present some solutions on how your renovation vision can be achieved!

Paying Cash

If you have savings, you can do your project with these funds. Unfortunately, not everyone has a large chunk of money to use cash, and sometimes, there are budget overruns that go beyond your cash on hand. It also isn’t necessarily a good idea to have no debt, but be cash poor. Equity in a home is not liquid so making sure you have access to money for emergencies and other life circumstances should also be considered when deciding to use cash.

Using a Home Equity Line of Credit (HELOC)

If your home has a good amount of equity, adding a HELOC is a great way to add value to your home while using that value to fund it. A HELOC operates just like a regular line of credit. You can draw on it as needed and pay back as little as interest only each month, or pay up to the full balance whenever you want. Because this type of line of credit is secured against your home, as a “type” of mortgage, the rate is lower than using credit cards or other unsecured lines of credit. A nice benefit of HELOCs is once you have paid off your renovation HELOC, you can use it for something else, for instance, a down payment on investment property, investing in RRSPs or non-registered investments, even starting a business! PS I can help you set these up!

Using a Refinance Plus Improvements Mortgage

If your home doesn’t have a lot of equity, a Refinance Plus Improvements mortgage may be a better fit. The current value of your home, plus the value of the upgrades, vs the current mortgage, plus the cost of the upgrades is calculated. If the total home value vs the total financing needed is 80% or less, then this is a great way to finance your reno. Here’s how it works:

**Determine the current value of your home – typically the lender will have an appraisal ordered

**Gather quotes for the work you will have done

**Once the work is done, invoices and receipts and/or another appraisal is done to determine the final value and show the work was completed

**Lender releases the improvement funds from the approved mortgage amount so you can pay the invoices/reimburse your receipts.

Each lender is a bit different in how they run this program – depending on where you are in your mortgage term and who your current lender is can all determine exactly how this program would work for YOU. If you want to know how your specific reno would work here, contact me today and lets talk this through!