Can you borrow money to renovate your home and should you? That is one of the top questions that comes to mind when thinking not only of selling your house but buying a fixer-upper too. The good news, yes you can. Should you? Well, that depends. There are a few things to consider before renovating your home: types of financing, return on investment, your home’s value and the insurance policy are some of those things. So, let’s start, shall we?

Types Of Renovation Financing Options

In Canada, there are a few financing options when it comes to home improvement: unsecured personal loan, credit card, cash-out mortgage refinancing and home equity line of credit.

Unsecured Personal Loan

With a stable income and a good credit score, you can apply for an unsecured personal loan. All you have to do is agree on a loan term and an interest rate, and the funds are transferred to you in full. You then proceed to make regular payments to the lender until you pay everything off. There is no collateral required and the rates are often affordable.

Credit Card

To finance your renovations, you can use the remaining balance on your credit card. This option is not so common due to the high-interest rates on credit cards, often higher than personal loans. You can do this for small payments, incidentals, or renovations that do not require a lot of work. When deciding whether to use a credit card for renovation or not, check if you can repay that balance in a month. Because if you can’t, you will most likely face some big interest bills.

Cash-out Mortgage Refinancing

With cash-out mortgage refinancing, you refinance your existing mortgage for a greater amount than what you currently owe. The difference is paid to you in a lump sum and is up to you to decide what you will do with the money.  How much money you qualify for depends on how much equity you have in the home. The longer you own the home, the more equity you have and the more loan amount you can get.

The interest for this option is usually low, and it practically pays for itself IF the renovation is big enough to increase your home’s value in the end.

Home Equity Line Of Credit (HELOC)

Taking out a home equity line of credit is another common method of financing home improvements. Here, your home equity is used as collateral for the loan. If you want to qualify for it, you need equity in your home of at least 15 percent, though some lenders require at least 20 percent.

How Much Do Home Improvements Affect Your Home’s Value?

Some of the most popular renovations in one’s home are connected to bathrooms, kitchens and backyards. Oftentimes, people think getting a pool might increase their homes’ value, but in most cases, buyers don’t really care about pools, especially in today’s market. So, even though having a pool should increase your home’s value, it might be harder to sell it. Some resources say that a pool can increase your home’s value by less than 2.5 percent, while others will say the increase will be a maximum of 7 percent of your pool cost.

For comparison, a new bathroom might add between 2.5 and 12.5 % in value, while kitchens add up to more than 12.5%. It all depends on the current trends, materials used, style and more. However, there are small renovations that go a long way – a fresh coat of paint comes with the highest return on investment.

What Happens To Your Insurance If You Go Through With This?

While renovating your home might sound appealing, think twice and check the fine print on your insurance contract. In some cases, housing upgrades can affect your insurance policy, depending on the type of renovation you’re thinking of having. If you’re adding a bedroom or a little studio apartment above your garage, you will need to call your insurance company and talk to them about your new home-worth. More square feet, more money to pay for insurance. With swimming pools, there is an extra ‘issue’ since with them, come hazardous possibilities like drowning. Some insurance companies might not want to insure your home until you put a fence around the pool, some won’t insure it at all. That’s why it’s important to do your research before applying for a loan.

Renovating a home comes with a lot of dedication and satisfaction, but responsibilities too. Choosing a suitable loan for financing can be hard, which is why you should talk to a professional before taking the leap. Contact us today for some advice!