With house prices on the rise, combined with low inventory and mortgage stress test qualification, an increasing number of Canadians are opting to stay in their current home and renovate by taking advantage of home improvement loans rather than trying to find a new property to meet their needs.
Your home is your greatest asset and renovations can be a great way to increase its value. The question is whether you have the funds to pay for them. As a homeowner, you may be able to tap into the equity you’ve built up in your home to pay for any home improvement projects on your wish list.
Borrowing money for renovations
Home equity is the difference between the current value of your home and the unpaid balance remaining on your mortgage. Depending on the amount of home equity you have, the total you can expect to borrow is likely much higher than what you could hope to obtain through a personal loan. Typically, the maximum borrowing amount is equal to 80-85% of the appraised value of the home.
Given that your home is used as collateral, the equity loan carries less risk and, therefore, lower interest rates than other types of loans. As your mortgage agent, I’ll consult with you about the type of equity loan you should obtain for financing home renovations based on your needs. For instance, a home equity loan will provide you with the funds in a lump-sum payment, whereas a home equity line of credit (HELOC) allows you to draw money on an as-needed basis.
The first step involves identifying the types of renovations you want to undertake, the amount of money you’ll need, whether you need all the money up front or in stages. and how long you anticipate paying off these costs. This will help you decide which type of loan is most suitable.
Once you’ve selected the type of home equity loan you’re going use, you’ll want to think about the sort of improvements you’d like to complete. There are many types of projects you can complete that will enhance the appeal and increase the value of your home. The most worthwhile investments will generate higher resale value when the time comes. But if you plan on staying put for a number of years, your focus should also be on areas that you’ll enjoy now while you’re living in the home.
The idea of renovating can be an exciting and rewarding experience as you envision the final result. Improving the functionality of your home, increasing the square footage or simply upgrading certain areas will all pay off, both now and into the future.
Using your home to ultimately put money and value back into it makes a lot of sense. Be sure to make plans, be practical and pack your patience, and you’ll be on your way to enjoying a new sanctuary to call home.
Have questions about home improvement loans in Ontario or regarding your mortgage in general? Answers are a call or email away.