Canada: Four Ways to Finance Your Home Improvement

A home renovation is one of the best ways to update your home to suit your current lifestyle needs. As a Member of the Top 5 in Real Estate Network®, I’ve also seen how a wisely thought-out renovation increases the value of your home and pays dividends when the time comes to sell.
Many clients ask my advice on the best way to finance a home renovation. The very first step to take is to talk to a lender before pursuing a renovation. Determining how much you can borrow up front will set the course for your project in advance.
Here are some avenues clients have taken to finance their home improvement projects that also come recommended by the Canadian Home Builder’s Association (CHBA) www.chba.ca:

1. Line of credit. According to CHBA, this option is popular for smaller renovations as well as long-term renovations. With one application, you establish a revolving credit line that you can access at any time, up to your approved limit. An itemized monthly statement lets you keep track of your renovation expenses, and you only pay interest on the funds you use. As you pay off your balance, you can re-borrow the unused funds without reapplying.

2. Personal loan. An installment loan lets you budget regular payments at a fixed or variable interest rate for a set period of time. Repayment periods typically vary from one to five years. Once you pay off the loan you no longer have access to the credit.

3. Secured lines of credit and home equity loan plans. If you have built up enough equity in your home, a line of credit or personal loan plan can be among the most economical of options. The loan is secured against the equity in your home and, therefore, often carries preferred interest rates. While there is typically no cost to open a secured line of credit or home equity loan plan, legal and appraisal fees usually apply.

4. Refinance. You can also refinance your existing mortgage, potentially borrowing up to 95% of the value of your home, less the outstanding balance of any existing mortgage. This option allows you to take advantage of mortgage rates, which are often substantially lower than credit card and loan rates. Loans of 75% or more of the appraised value of your home must be insured against borrower default; the mortgage insurance premium can be paid upfront or added to the mortgage amount.