How Do I Pay For a Home Renovation?

Home renovation financing has matured into one of the most competitive aspects of today’s mortgage market, and equity-rich homeowners are benefiting from an unparalleled degree of flexibility and options. small bathroom renovations

When the client tells how they plan to spend and we will tell them what is the best value and the right product. Like most lenders has an extensive menu of options for those planning home makeovers, plus seasonal promotions and incentives that can sweeten the deal. For instance, if you are planning a small fix-up or improvement, such as $5,000 to $10,000 worth of paint, carpeting and appliances, it may be wise to use a premium credit card for the initial purpose to accumulate travel or merchandise points. Then, before the credit bill is due, you can take out a lower-cost personal loan or equity loan to pay it off.

Advantage of credit cards is that a warranty is offered on purchases, so there is some extra protection. For mid-size and larger projects, any- thing over $10,000 right up to six figures, the best bet is to use an equity line of credit. Based on your personal credit rating, amounts of up to 80 per cent of the equity in the home can be borrowed, in some cases even higher. For example, if your house was valued at $580,000 and you had a $170,000 mortgage, you could borrow $384,000 to fund a renovation. There is also Canada Mortgage and Housing Corporation mortgage insurance available that can increase the loan-to-value-ratio. The advantage of such credit lines is that you only pay interest on the amount of the money that is actually used, and the credit lines also offer flexibility in the case of cost overruns during a renovation. There are even credit cards linked to the line of credit for immediate access. Home equity loans are normally available at about two points above prime rates, but lower rates are available for those with a strong credit history. Other major lenders will sometimes even lend money on renovations that exceed the equity in the home. This is based on the future appraised value of the home once the renovations are complete, according to a professional appraisal, which the homeowner pays for.

Energy incentives

There are also instances where someone having a legal rental suite renovated into their house can qualify for lending based, at least partly, on the rental income. Only half of the rental income is normally counted as personal income. If you are tying energy savings into your renovation project, there are incentives to make financing easier. To qualify, you need to make renovations recommended under the federal governments ecoENERGY Retrofit program. These renovations must achieve at least a five-point improvement in your home’s energy efficiency rating CMHC has also added environmentally friendly features to its mortgage loan insurance. If you use CMHC insured financing to make energy-saving renovations or renovate your existing home to make it more energy-efficient, a 10 per cent refund on the Insurance premium may be available. You could also have the added flexibility of a longer amortization to a maximum of 40 years, significantly reducing your monthly payments.

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