There’s a real slippery slope when it comes to home renovation. On one hand every dollar put into the project helps to boost the resale value of your home when it’s time to sell while also increasing the quality of living in the meantime. On the other hand though, every dollar put into the renovation must also be accounted for somehow either by tapping into savings, getting a loan, re-financing a mortgage, etc. Real estate agents agree that putting money into your home is one of the best investments that can be made, so here’s how you can get your hands on the right type of home renovation financing.
Home Equity Line of Credit
When a contractor first gives you a bid for the renovation it’s important to remember that it is just an estimate. After the drywall is ripped away and the contractor gets a good look at what they’re actually dealing with, there may be some unforeseen expenses that cannot be avoided. Demolition can be like a kid on Christmas morning, tearing through the many layers only to be surprised by what’s inside – unfortunately, when it comes to home renovation, those surprises typically weren’t on the wish list and cannot be re-gifted. Having a contingency fund is a must-have so an open line of credit can help keep you from boiling over. Home equity uses value already built up to secure the credit which can be used to buy materials and pay laborers over a long stretch of time.
The thing about home equity loans and lines of credit is that you have to actually have some market value in order to tap into them. For those who do not have any equity in their home, another option to finance a renovation is to take out a personal loan. Assuming you meet the lending criteria for your financial institution or creditor, you can take out a personal loan and pay it back on a monthly schedule (typically over 1-5 years). Personal loans are appealing for those looking to renovate the home to sell in the near future as they can pay off the sum when the house sells.
What many people don’t like about a loan is that it adds another monthly payment to make, often along with a mortgage bill among others. What many Canadian remodelers choose to do instead is keep roughly the same payment but stretch it out over a longer period of time by refinancing their mortgage.
Things to Remember About Home Renovation Financing
No matter how you secure home renovation financing, one thing you should always keep in the back of your head is that the home is increasing in value… which is a good thing. Depending on the project scope, you can recoup some of that money almost instantly by going energy efficient whether it be appliances, windows, insulation, etc. If you do your homework before tackling the renovation, you may also qualify for rebates, incentives, grants, and insurance premium refunds.
Not sure how much credit you’ll qualify for? Try out this handy lending calculator to get a rough estimate. Keep in mind that you may be able to get a higher amount if you secure your loan using collateral (i.e. existing home equity or other assets).