Home Renovation Mortgage
When dreaming of a home renovation, visions of new cabinets, counter tops and appliances are often the first things that come to mind. Maintaining your property and undertaking smart renovations not only improve the utility and value of your property, they can also protect the value in a declining market or make it easier to sell.
With any renovation there are a certain number of costs you can calculate upfront – and then there are the unforeseen costs that can pile up, when a project goes over-budget or a contractor’s estimates don’t match the final bill.
But, figuring out how you’re going to pay for it? That’s likely a little further down the line. It may not be the most exciting part of a reno, but experts say planning your financing well in advance is key to a successful project.
A home equity line of credit (HELOC) is one of the most popular ways Canadians finance their renovations. They work much like regular lines of credit, allowing the homeowner to borrow whatever money they choose, up to the credit limit, pay it back and borrow it again, if needed.
Along with options like mortgage refinancing and borrowing money that you’ve prepaid on your mortgage, HELOCs have the benefit of low interest rates.
If there is equity in your home, you could look at refinancing your mortgage or taking out a second mortgage. A 2nd mortgage is a loan on top of your existing mortgage. This could be less expensive than a HELOC, and offers up front cash and a structured repayment plan. Alternatively you could try to refinance with equity take-out. This means you replace your existing mortgage with a new mortgage up to 80% of the property’s “as-is” appraised value.
Assuming you have some equity, you can end up with a lump sum of cash at the beginning of your project, and spend it as you see fit. You can also borrow based on the “as-if-improved” value of the property accessing some of your equity upfront and the balance of the newly created equity once the improvements are complete.