There are many different
reasons to renovate a home: to save energy (and save on utility bills), to
make room for a growing family, to improve safety or increase the resale
value of your home, or simply to bring a fresh new look to your home. There
are also a number of different ways to finance your renovation.
Explore your options
Your own resources: For smaller renovation projects, you may consider self-funding material costs, especially if you plan to do the work yourself.
Credit card:
Likewise, you can use your credit card to pay for materials for smaller
renovations. But be careful not to carry the balance for too long. Credit
card interest rates can exceed 18%.
Personal loan: With
a personal loan, you pay regular payments of principal and interest for a set
period, typically one to five years. You also have the option of a fixed or
variable interest rate for the term of the loan. The interest rate on a
personal loan is typically less than that of a credit card. Unlike a line of
credit, however, once you pay off your loan, you’ll have to reapply to borrow
any new funds needed.
Personal line of credit: This
is another popular choice for financing renovations. It’s ideal for ongoing
or long-term renovations since it lets you access your funds at any time and
provides a monthly statement to help track expenses. A line of credit offers
lower interest rates than credit cards, and charges interest only on funds
used each month. And, as you pay off your balance, you can access remaining
funds, up to the line of credit’s limit, without reapplying.
Secured lines of credit and
home equity loans: These options offer all the advantages
of regular lines of credit or loans, but are secured by your home’s equity.
They can be very economical, since they offer preferred interest rates, but
keep in mind that initial set-up costs including legal
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and appraisal fees usually apply. Lines of credit are
typically limited to 65%, while home equity loans are capped at 80% of your
home’s value.
Mortgage refinancing: When
funding major renovations, refinancing your mortgage lets you spread
repayment over a longer period at mortgage interest rates, which are usually
much lower than credit card or personal loan rates. This type of financing
can allow you to borrow up to 80% of your home’s appraised value (less any
outstanding mortgage balance). Initial set-up costs including legal and
appraisal fees may apply.
Financing improvements upon
purchase: If you’re planning major improvements for a home you’re about
to purchase, it may be advantageous to finance the renovations at the time of
purchase by adding their estimated costs to your mortgage. Canada Mortgage
and Housing Corporation (CMHC) Mortgage Loan Insurance can help you obtain
financing for both the purchase of your home and the renovations – up to 95%
of the value after renovations – with a minimum down payment of 5%.
Grants/rebates for
energy-saving renovations
Across Canada, renovation grants and rebates are available
from the federal and provincial governments and local utilities, especially
for energy-saving renovations. If you qualify, they may help pay for some of
your project’s costs.
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