Are you planning to renovate your home or about to buy a fixer upper? Wondering how you’ll finance it? Here are some options and advice to help you find the solution that’s right for you.
After drawing up a renovation budget, you’ll first want to check your ready cash and savings. You might actually have enough to pay for the work.
But you might also want to budget an amount for systematic savings to cover future renovations. By setting specific goals, you may be able to save up the amount you need within, say, a year.
If you’re about to buy a fixer upper, you can add the amount you’ll need to finance the renovations into your mortgage.
For example, say you buy a house for $400,000, but it needs $30,000 worth of work in the kitchen and bathroom. If you can make a down payment of $86,000, you can take out a mortgage for $344,000. That’s the price of the house plus the renovations, minus the down payment.
While there are several advantages to financing your renovations this way, there are also some obligations to consider.
Remortgaging your house can be a good way to get the funds you need for renovations, provided you have enough home equity, of course.
What is equity? It’s the difference between your house’s current market value minus what you owe on your current mortgage.
Good to know: you can refinance up to 80% of your house’s market value.
So if you have a $300,000 house and still owe $150,000 on it, you could borrow $90,000 to pay for renovations: ($300,000 x 80%) − $150,000 = $90,000.
Refinancing can be advantageous when the renovations will add value to your home. By increasing its value, you increase the probability of a return on investment when you sell.
Like all financing options, this one has both advantages and disadvantages.
A home equity line of credit can be advantageous if you want payment flexibility.
To make an informed choice, you must understand the difference between a mortgage, a home equity line of credit, and a personal line of credit. Like all the mortgage options mentioned above, a home equity line of credit is based on your home’s market value.
If you already have a mortgage, think about getting a home equity line of credit when you refinance.
You can also use a personal line of credit or a personal loan to pay for your renovations. These are both advantageous ways to finance small jobs.
Unlike the previous options, these two don’t involve your house.
Advantages of a personal line of credit:
Advantages of a personal loan:
Credit cards are very convenient means of payment. For example, you can use them to buy materials and tools in stores or online.
But you can also view your credit card as a way to cover unexpected expenditures. Especially if you understand how it works and are in the habit of paying it off in full every month.
Depending on which card you have, you may be eligible for generous discounts or rewards and, in some cases, an additional warranty on your purchases.
Some provincial governments offer financial assistance and tax credits for eco-friendly renovations, so you may be able to lower your costs this way. You’ll have to make sure the financial assistance and credits are still being offered when the work starts and that you meet the eligibility criteria.
Regardless of how extensive renovations are, there are always unexpected expenses, so budget more than you think you need. Our advisors can help you choose the right type of financing. We’re here to answer your questions.
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