From replacing the countertops in your kitchen and bathrooms to completely revamping your home’s exterior – the options for renovating your home are almost endless. Your renovations can also be as luxurious and comprehensive as you can imagine. However, as your list of wants grows, so will the budget required to bring your vision to life. Figuring out how to finance a home renovation is a common source of stress for a lot of homeowners. Luckily, there are a number of financing options available for your home renovation project. Here are a few you may want to consider:
Personal savings and credit cards
Using your personal savings is probably one of the easier ways to finance your home renovation. If you’re embarking on a small renovation project such as replacing light fixtures, and carrying out the renovations yourself, this is probably your best financing option. You can set aside a little money each month for a period of time to raise funds for small remodels. This fund should be enough to cover the materials and tools necessary for your home reno. It’s also a good idea to set some money aside for unexpected costs and circumstances. Using a credit card is also a good option when it comes to small reno projects, just avoid carrying the balance on your card for too long to avoid paying a high interest.
Renovation loans are another great option for financing your home reno. If your renovation is going to end up costing thousands of dollars, a renovation loan is the best way to cover the expenses. Generally, the types of home renovation loans available include:
1. Personal loan: Personal loans provided by banking institutions provide you with the funds to make large purchases required for your home reno. These loans typically have lower interest rates than credit cards and a set time frame, typically 1-5 years, in which you’re required to pay off the loan.
2. Home-equity loan: Home equity loans offer pretty similar tax benefits in comparison to conventional mortgages. The only exception is the closing costs. When you’re approved for a home equity loan, you get the lump sum up front and pay it back at fixed interest rate.
3. Home-equity line of credit: Lines of credit are very similar to credit cards – you only have to apply once, and have continuous access to a set amount of money. When using a line of credit, you have the freedom to withdraw money whenever you feel necessary, and you’re only charged interest on the amount you use. Fees and interest rates associated with lines of credit vary greatly from institution to institution. If you’re considering a line of credit, talk to professionals and weigh your options carefully to get the best deal. Unlike credit cards, home equity loans and lines of credit typically offer the lowest interest rates as the loan is secured by the equity in your home.
Most banks offer different types of renovation loans, so you should be able to sit down with a professional in your institution of choice to go over their services, and decide which is best for you. Another thing to note is that some banks offer fixed home equity loans with increasing limits on the line of credit as you continue to pay down the fixed equity portion of the mortgage. This combines the best of both options and let’s you pay interest only on the amount you need to borrow — only when you need to borrow it.
With a fixed loan you start paying interest & principle on the full amount right away, regardless of when you actually need the money.
When you refinance your mortgage, you’re essentially replacing your current home loan with another one governed by different terms. Refinancing your mortgage is a good option if your home has increased in value and you’re able to get a lower interest rate. This option can free up some cash for homeowners through lower monthly mortgage payments.
For more helpful information on financing options for your home reno visit the CMHC website.
Thinking of renovating your home? Get in touch with us today!