Financing Options for Renovation You may have many reasons to renovate your home – to save energy (and lower your utility bills), to remodel your home for a growing family, to improve security or increase the resale value of your home or to simply refresh its appearance. There are also many ways to finance your renovations. In the following lines, you will find information on a number of financing options, as well as practical advice that will help you get your renovation project off to a good start. Before you start Whether your intention is to finance your renovations yourself or to borrow the necessary money, talk to your financial advisor and your lender before stopping your project for good. These people can help you understand the options available to you, determine with you the amount you can borrow and even pre-approve your loan application. This information will help you plan realistically.
Explore your options Use your own resources – For small renovations, you may consider paying cash for your materials, especially if you plan to do the work yourself. Credit card – For small jobs, you can use your credit card to pay for the materials. However, avoid leaving a balance unpaid for too long, as credit card interest rates can exceed 18%. Personal loan – If you take out a personal loan, you then make periodic payments to repay the principal and pay the interest for a pre-determined period, normally one to five years. You also have the option of choosing a fixed or variable interest rate over the term of the loan. Normally, the interest rate of a personal loan is lower than that of a credit card. Remember that once your loan has been paid off, if you need to borrow new funds, you will need to reapply.
Personal line of credit – The line of credit is another popular option for financing the work. It's an ideal instrument for long-term renovations, because it allows you to access your funds at all times and you receive a monthly statement that helps you track your expenses. In addition, the line of credit has a lower interest rate than credit cards, and only the funds used each month incur interest charges. As you pay down your balance, you can access unused funds, up to the line of credit limit, without having to reapply. Secured line of credit and home equity loan – Secured lines of credit and home equity loans have all the benefits of regular lines of credit or loans, while being secured by the equity in your home. They can be very economical, since they offer preferential interest rates, although initial fees, including legal fees and inspection fees, generally apply. Lines of credit and home equity loans are limited to 80% of the value of the home.
Mortgage refinance loan – In the case of major renovations, refinancing your mortgage allows you to spread the repayment over a long period at a mortgage interest rate, which is generally much lower than those of credit cards or other types of loans. This form of financing can allow you to borrow up to 80% of the appraised value of your home (minus the outstanding balance of your mortgage). Initial fees, including legal fees and appraisal fees, may apply. Financing renovations at the time of purchase – If you are planning major improvements to a home you are about to buy, it may be advantageous to finance them at the time of purchase by adding their estimated cost to the mortgage amount. CMHC Mortgage Loan Insurance can help you obtain financing for both the home purchase and renovations – up to 95% of the value of the renovated property – with a minimal down payment 5% from you.
Other Considerations and Options Plan for the unexpected It would be wise to set aside a percentage of the funds reserved for your renovations, whether for items not mentioned in the contract, for additions that become necessary during the work, the acquisition or upgrading of functionalities, the purchase of furniture, appliances, window coverings and contingencies. This segregated fund will make your decisions easier, and you won't have to renegotiate your financial arrangements or apply for new funds. Grants and reductions for energy-efficient renovations Across Canada, grants and rebates for renovations are offered by the federal government, provinces and local utilities, specifically for carrying out work to reduce energy consumption. If you are eligible, this financial assistance could help you defray a portion of your costs. CMHC Mortgage Loan Insurance for Energy Efficient Homes: 10% refund on the mortgage loan insurance premium and a refund of the premium in the event of an extended amortization period (if applicable).
ecoENERGY Retrofit – Homes: up to $5,000 grant to offset the cost of energy-efficient renovations. Provincial and municipal entities providing grants and incentives
Rebates and incentives for products that meet ENERGY STAR® requirements in Canada Published by Boxcom
Source of picture:hugoneveu.com
Source: cmhc-schl.gc.ca
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