Like a bird fixing their nest, you renovate and beautify your home. Over the years of living in our homes, changes in our lifestyles, needs and unexpected repairs might compel us to take money out of our pockets for home improvements, renovations and repairs. After all, your home won’t remain unphased withstanding the test of time.
Whether you’re doing a home makeover or any home improvement projects, renovations are something that you shouldn’t overlook when buying a house. Without having to spend a huge portion of your savings or obtain a personal loan, there are multiple options you can tap into to cover your costs.
We’ve included some experiences shared with us from homeowners who used their mortgages and home equity to fund their respective home renos.
How much will this cost?
The cost of renovating a home depends on the components of the project. For instance, remodeling a kitchen often costs the highest with minor upgrades such as replacing faucets, lighting improvements and repainting costing less. It’s recommended to have some estimates done before embarking on any home upgrades.
Refinancing for Home Renovation and Repairs
1. Home Equity Line Of Credit (HELOC)
A home equity line of credit, commonly known as HELOC – a revolving line of credit that’s secured by the equity in your home. Almost all banks and credit unions offer this type of lending. Since a HELOC’s secured on your home, it can offer much lower interest rates when compared to other loans and lines of credit. With a HELOC, homeowners can typically borrow up to 70% of the appraised value of their home minus the amount owing on their mortgage. For instance, if your home is worth $1,000,000 and you owe $450,000 on your mortgage, you may borrow up to $250,000 on a HELOC.
This is the option Sharon and Nick Johnson opted for when they had to renovate their home a few months into the pandemic. “COVID-19 brought to us a new living situation that we really weren’t prepared for. We didn’t have cash lying around for a big renovation, but we had a good amount of equity in our home, so we decided to tap it. It was actually one of the best decisions, because we didn’t only get the renovation that suits us, the upgrade also increased the value of our home”.
2. Home equity loan
A home equity loan in Canada’s a broad term that describes different types of loans in which the borrower uses their home equity as collateral. Like a typical installment loan, a home equity loan will provide you with the funds you requested in a lump sum, which you can pay back in installments plus interest. Generally, borrowers must have at least 20% equity in their home before they can qualify.
One of the best uses of this loan type is to cover the costs of renovations. Especially if the project you’ll be undertaking can add value to your home.
Philip and Norah Teller made the decision to apply for a home equity loan as their family started to grow. “We were fortunate enough to be able to buy a ‘starter’ home when we got married, five years ago. It’s perfectly humble for us and as we had our first baby. But now that we’re expecting again (for a baby), we need to renovate,” said Philip. “We’re renovating not just for the extra room for our second child, but also for our future. Although we love our home, we know it won’t be practical to stay here forever. So we’re building its value, and when the time’s right, we’ll sell and buy our next ‘forever home’”.
3. Mortgage refinance
A mortgage refinance means you’re replacing your current mortgage with a new one that has a higher mortgage balance. In essence, the difference between your new and old mortgage is the amount that you’re borrowing, so you’ll be able to use this amount to pay for the costs of your home improvements.
From Luke Greene’s experience, mortgage refinancing has been the best option for his bathroom renovation. Luke’s senior dad has been living with him and has lost his mobility in the past year. To cope with the situation, he made a home project that would make their place more accessible for his father. “No matter how much we prepare, sometimes the unexpected happens, and we just have to get ready for it. This was my mindset when my dad lost his mobility due to an accident. Though I wasn’t ready for it financially, I was able to get a loan for a bathroom renovation in my dad’s room to make it easier for him to navigate and be independent”.
4. Private loans
If you’re someone who’s in need of a renovation urgently, but doesn’t have enough equity to qualify for a HELOC or a home equity loan, then obtaining a private loan may be the option for you. Private loans have a quicker application process but the rates are higher.
5. Credit cards
If you don’t want to tap your home equity or don’t have enough equity to do so, credit cards for home improvement projects may work for you. Just keep in mind that credit cards typically have higher rates and use a lot of your available credit.
What’s the Best Option for Your Home Reno?
Selecting the best financing option will depend on many factors, including the amount of equity in your home, credit card balances and cost of the renovation, as each option will have its own conditions and requirements.
If you’re having difficulties, it’s recommended to work with a financial professional who can help you. Based just outside the Greater Toronto Area, Daisy Raouph’s a mortgage broker and financial security advisor equipped with over 30 years of experience in mortgage and financial services. Consult Daisy today and find the best option for your home reno!