How to finance home renovations in Canada
If you’re eager to fix up your home but not sure how to go about financing your home renovations, here’s what you need to know about the options for Canadians.
Many people are interested in updating their homes but aren’t quite sure how they’ll pay for it.
The good news is that there are many ways of financing home renovations – but the challenge is determining which option is right for you. This is one of the most important things to consider before tackling major home renovations.
By taking time to understand the different home renovation financing options, you’ll feel better equipped to confidently choose the one that best meets your financial situation and goals.
Can you afford to finance your renovations?
Once you go through the list of options, you need to really ask yourself if you can afford to finance your home renovations. Low interest rates encourage borrowing, but remember that when you borrow to renovate, you’ll need a plan to pay that money back.
Consider your monthly budget and how an extra payment could fit. The type of financing you choose (and how long you have to pay the loan back) can significantly impact your monthly renovation finance payment.
Use your home equity
One financing option to consider is accessing your home equity. Home equity is the difference between what you currently owe on your mortgage and the current value of your home.
Using home equity gives you the freedom to access money you need as you need it at lower rates. And given the incredible price increases of homes across Canada in recent years, you might find you can borrow against some of that equity at today’s low interest rates.
For example, Manulife One can give you immediate access to your home equity, and might give you the flexibility you’re looking for to easily use that equity to help pay for the home renovations you’re dreaming of.
Refinance your mortgage
Sometimes homeowners ready to renovate prefer to refinance the terms of their existing mortgage including the amount, interest rate, and amortization. This could let them borrow more money and pay it back over a longer term, keeping payments as low as possible for the new, larger amount.
One option could be the Manulife Bank Select mortgage. It’s a more traditional mortgage, but it lets you split your mortgage into different portions to easily track the money used to finance your renovations.
How to pay for home renovations using a line of credit
Are you planning to do your own home renovation? Or to complete them gradually over time? If so, a line of credit could give you access to the funds you need as you need them, and with a line of credit, you don’t pay interest on funds you aren’t using immediately. This is another advantage of Manulife One – as you build up equity in your home, it’s accessible when you need it, and you’ll only pay interest on that money as you use it.
If you opt for an unsecured line of credit, be aware that it will likely come with a higher interest rate than a secured credit line. If you have good credit, however, this can be a quick solution to borrowing money for a home renovation.
Personal loan from family or friends
As Global News recently reported, more young Canadians find themselves borrowing from the BOMAD (Bank of Mom and Dad) to finance home purchases, so it’s reasonable to assume that some Canadians are also lucky enough to borrow from a family member to help pay for home renovations.
However, keep in mind that this could mean additional financial responsibility for you down the road, for example, it may delay their retirement if your parents tap into their savings for tomorrow in order to help you today.
Save and pay for renovations gradually
It isn’t always necessary (or even possible) to borrow money to fix up a home right away. You always have the option to save a little each week and pay for renovations as you can afford them. In fact, some people make a conscious decision to update their homes without going into debt.
If you choose to do this, look for money hacks to help save or make money to finance your home renovations, like using your tax refund to give your home renovation savings fund a jump start.
Add a “home renovation savings” category to your personal budget, and set goals with target dates to work towards to stay inspired and motivated.
Understand the best ways to spend
Before jumping into demolishing your kitchen or picking out new bathroom fixtures, spend some time planning, preparing, and educating yourself on the best ways to spend to improve and update your home.
Firstly, it’s important to understand home equity - what it is and how you could use it to help finance your home renovations.
Next, research the best DIY projects to add value to your home.
And finally, spend some time finding a reputable contractor. Knowing what to ask when hiring a contractor could help save time, trouble, and money on your home renovation project.
Completing a home renovation is an exciting activity - yet don’t let your excitement lead to costly decisions or mistakes. Take time to select the right financing option as well as the renovations that will add the features you want plus additional value to your family home.