Considering a HOME RENOVATION or CONSTRUCTION project? Wondering how to finance it?
When it comes to financing, there is no one size fits all solution. Your options will depend on the scope of the construction or renovation project, the amount of equity you have in the property, the value of your home, your credit score (check out this helpful article – Managing Your Credit Score For The Best Morgage Rate), your job status and the current lending rules and regulations. The great news is that there are a plethora of options available in the marketplace for people looking to borrow money. The trick is finding the product that suits your repayment and cash flow needs while offering you the best possible interest rate so that you can get what you want!
Kim Boehkle Mortgage Agent from Champion Mortgages Inc and Rochelle Chang Business Development Officer for South Western Ontario from Pillar Financial Services recently joined me for a Facebook LIVE to discuss Home Renovation Financing.
How you go about financing a home renovation will depend largely on your financial situation, and how much money will be required to complete the renovation. If you are considering a renovation and will require financing, I would highly recommend that you contact a qualified Mortgage Agent to run through the numbers with you. They will be the best person to present the best options to you based on your personal financial picture.
If you are in the process of gathering information, here are 8 ways that people often can go about financing a home renovation:
Personal Line Of Credit
An unsecured personal line of credit is a convenient and flexible solution that you might already have in place. Lines of credit often come with reasonable interest rates and allow you to take the money that you need when you want to take it and offers flexible repayment terms. This solution is best suited to someone who will be able to pay back the renovation in a reasonable amount of time. Keep in mind that you will likely have to make a minimum payment to your line of credit on a monthly basis.
Credit Card
While this is likely the highest interest form of credit you have available, it certainly is an option. This solution is best suited to someone who intends to pay back the borrowed money very quickly and is likely best suited to a small renovation project. If you have a project in mind and know that you have a lump sum of money on the way to pay back your debt, this might be a great option for you to get what you want RIGHT NOW! Proceed with caution…
Secure Line of Credit
You might already have a Secure Line of Credit or a Home Equity Line of Credit in place, which would make this option super convenient. Secured lines of credit often come with very attractive interest rates, flexible repayment terms, and often a high maximum credit limits. This might be one of the best options available depending on the scope of the home renovation that you have planned. Keep your cash flow in mind when deciding to go this route, you will face minimum monthly payments and need to come up with a plan to pay back the money you have borrowed.
Refinance The Home And Used Saved Up Equity
Depending on where you are in your mortgage term, this might be a very good solution for you. Be aware of possible mortgage discharge fees that could apply if you break your mortgage mid-term. This solution suits people who have quite a bit of equity in their home and are looking to spread out the repayment over several years. Be aware that based on the mortgage rule changes that came into effect in January of 2018, homeowners are not able to refinance more than 80% of the value of their property. Refinancing your mortgage will give you an opportunity to:
- Work with your Mortgage Agent to shop a bunch of lenders and find the best possible rate for your new mortgage. Depending when you negotiated your current mortgage or if your credit score has had a positive change, you might be able to find a better rate than you currently have!
- Gain access your hard earned home equity.
- Choose the amortization length and payment frequency that will allow you to best manage your cash flow.
Personal Loan
Personal loans offer better interest rates than a credit card. Expect a fixed repayment schedule and defined term.
Personal Savings
Using your savings to finance a renovation project might seem like the most responsible option especially if you have uninvested money sitting in your bank account or cash tucked under your mattress. But, before you take money out your RRSP, sell your bitcoin or other lucrative investment, I would urge you to do the math to see if this will cost of save you money over time!
Programs Like Purchase Plus Improvements
I recently had Kim Boehkle Mortgage Agent from Champion Mortgages on my Facebook Live show to discuss the Purchase Plus Improvements program.
This is a great option for financing renovations on a home that you are about to purchase. I’ve highlighted a lot of information about the program in this recent blog post – Home Purchase and Renovation Financing With As Little As A 5% Downpayment. This product allows you to build your renovations cost into your mortgage. Be aware that you will need to come up with the funds to finance the renovation project up front (reference all of the methods listed above) and will be reimbursed for the project once it is complete.
Work With A Bridge Lender Like Pillar Financial Services
If you are looking to take on a major renovation and don’t have a ton of equity to work with, have cash flow restrictions or have “unconventional” income you might consider a bridge lender like Pillar Financial.
Pillar Financial is a “Solutions Based Lender” who offer some incredibly flexible options for their clients. They offer to finance up to 80% of the completed value of the home, can work directly with your contractor to fund the construction, have a host of flexible and unique payment options and have a ton of experience in the home renovation and construction financing space. The depth of their experience with renovation and construction financing might even provide you with insights that could save you from making costly mistakes!
In order to apply for a renovation or construction loan through Pillar Financial, you will need to work with a Mortgage Agent or Broker.
If you are considering a home renovation or construction project it is a good idea to do your research. A great place to start is by reading this post from the government of Ontario Your Rights Starting Home Renovations and Repairs – the article is full of helpful information and resources to get you started. In addition to finding a well-qualified contractor, I would also suggest that you connect with your Realtor to review your plan. Understanding the “return on investment’ of a project might influence the choices that you make.
Trying to decide whether to renovate your existing home or purchase a place that already has the features you are looking for? I’d be happy to chat with you about it! Connect with me here for a free consultation.
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