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Home renovation funding options
Don’t want to leave the neighbourhood? Want to avoid the hassle of selling and buying another house, of packing and moving? Does your home needs to be more environmentally-friendly to save on energy costs?
If the answer to those questions is yes, then it’s time to renovate, something Canadian home owners do to the tune of $30 billion annually.
As there are many different reasons to renovate a home, so to are there renovation funding scenarios.
Your own resources
For smaller renovation projects, you may consider self-funding material costs, especially if you plan to do the work yourself.
This is only an option if you know the funds will be there to pay it off in full before interest charges. The big box store do not pay upfront sales pitch can lead you to a 28 per cent interest rate if the cost is not paid in full on the due date. So use caution when financing with credit.
With a personal loan, you pay regular payments of principal and interest for a set period, typically one to five years. The interest rate on a personal loan is typically less than that of a credit card. The downside is once you pay off your loan, you will have to apply again to borrow more money.
Personal line of credit
This is popular choice for ongoing or long-term renovations since it lets you access your funds at any time. 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, however, initial set-up costs including legal and appraisal fees may apply. As of this Oct. 31, secured lines of credit will be limited to 65 per cent of your home’s value.
When funding major renovations, refinancing your mortgage lets you spread repayment over a long 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 per cent of your home’s appraised value. And with today’s incredibly low interest rates, your new payments could very well be less or the same as they are now (with the additional funds added).
And remember to plan for the unforeseen. Set aside a 10 to 15 per cent added expense to your renovation budget.
Take note that time is running out for the Live Smart BC Rebate Program. Check out the website www.livesmartbc.ca/incentives/efficiency-home/index.html to see if your home qualifies.