When considering how to finance home renovations, the first step should be to get some sound financial advice.
“Any person considering doing a renovation, talk to your bank, talk to your financial institution or whoever you’re dealing with,” says Craig Bannon, the manager of mortgage specialists for the metro Halifax area with RBC. “Or if you’re not dealing with anybody, go find somebody because of all the different options. I think it’s important to sit down and get some advice.”
Bannon says choosing the right financing option depends on factors such as the cost of the renovations and how much equity people have in their homes.
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For smaller renovations, Bannon says people might just use a credit card because of convenience and potential loyalty reward points. Credit cards have higher interest rates (usually between 10 and 20 per cent) so they’re “not a long term borrowing solution,” says Bannon.
For larger renovations, getting a line of credit or a home equity line of credit (HELOC) are possibilities as well. The biggest difference between the two is the HELOC is secured by the value of one’s home, which also means it has lower interest rates.
A HELOC can finance up to 80 per cent of the value of one’s home, but it’s a little more complicated to make purchases with it.
“The only disadvantage I can think of would be you can’t actually go into a store and pay for something with it, but … you can either use your debit card or credit card and just transfer your money over,” says Bannon.
Another borrowing option is to refinance one’s mortgage, which can usually be done up to 90 per cent of the value of a home. One of the advantages with this is there is a lot of flexibility involved, such as choosing variable or fixed rate mortgages and selecting different term lengths.
The timing is also very appealing.
“No matter what interest rate term you pick now, you’re going to beat the 25-year average handsomely,” says Barry Rathburn, a mobile mortgage specialist with TD Canada Trust in the mid-Vancouver Island area.
He also recommends people look into the incentives available for energy efficient renovations.
“The energy efficiency not only saves you money in the long run, but there are incentives from (the various levels of government) to help you offset the cost,” says Rathburn.