Of Prime Interest: Home reno financing options

There are many reasons to renovate a home and there are also a number of different ways to finance that renovation.

  • Aug. 24, 2013 6:00 a.m.

Don’t want to leave the neighbourhood or have the hassle of selling, re-buying, packing and moving? Or, does your home need to be more environmentally friendly to save on energy costs?

Then it’s time to renovate. Canadians spend almost 30 billion dollars on renovating their homes.

There are many different reasons to renovate a home and there are also a number of different ways to finance your renovation.

So, it’s time to 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: This is only an option if you know the funds will be there to pay it off in full before interest charges.

Big box store  “Do Not Pay” options backdate interest at 28+ per cent if not paid in full by the due date.

Use caution with this choice.

Personal loan: 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 down side is once you pay off your loan you will have to re-apply to borrow any new funds.

Personal line of credit: This is a 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 in each month.

And, as you pay off your balance, you can access remaining funds up to the line of credit’s limit, without re-applying.

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.

Lines of credit and home equity loans are usually limited to 80 per cent of your home’s value.

Mortgage refinancing: 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 percent of your home’s appraised value. And with today’s interest rates, such as 3.29 per cent fixed for four years, your new payments could be less or the same as they are now.

Up to 85per cent of your home’s equity can also be provided when insured by CMHC Mortgage Loan Insurance.

Important fact: Remember to keep in mind to set aside 10 per cent to 15 per cent in your budget for cost overruns.

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