Before You Begin
Explore Your Options
Your own resources:
For smaller renovation projects, you may consider self-funding material costs, especially if you plan to do the work yourself.
Likewise, you can use your credit card to pay for materials for smaller renovations. But be careful not to carry the balance for too long; credit card interest rates can exceed 18%.
With a personal loan, you pay regular payments of principal and interest for a set period, typically one to five years. You also have the option of a fixed or variable interest rate for the term of the loan. The interest rate on a personal loan is typically less than that of a credit card. Unlike a line of credit, once you pay off your loan you will have to reapply to borrow any new funds needed.
Personal line of credit:
This is another popular choice for financing renovations. It is ideal for ongoing or long-term renovations since it lets you access your funds at any time and provides a monthly statement to help track expenses. A line of credit offers lower interest rates than credit cards, and charges interest only on funds used each month. And, as you pay off your balance, you can access remaining funds, up to the line of credit’s limit, without reapplying.
Secured lines of credit and home equity loans:
These options offer all the advantages of regular lines of credit or loans, but are secured by your home’s equity. They can be very economical, since they offer preferred interest rates, however initial set-up costs including legal and appraisal fees usually apply. Lines of credit and home equity loans are usually limited to 80% of your home’s value. With CMHC insured financing, lenders may offer borrowers who qualify the option of making interest-only payments for the first five or 10 years.
When funding major renovations, refinancing your mortgage lets you spread repayment over a long period at mortgage interest rates, which are usually much lower than credit card or personal loan rates. This type of financing can allow you to borrow up to 80% of your home’s appraised value (less any outstanding mortgage balance). Initial set-up costs including legal and appraisal fees may apply. If you need to tap into more of the equity in your home, loans of up to 90% of your home’s value can also be provided when insured by CMHC Mortgage Loan Insurance.
Financing improvements upon-purchase:
If you’re planning major improvements for a home you’re about to purchase, it may be advantageous to finance the renovations at the time of purchase by adding their estimated costs to your mortgage. CMHC Mortgage Loan Insurance can help you obtain financing for both the purchase of your home and the renovations — up to 95% of the value after renovations — with a minimum down payment of 5%.
Other Considerations and Options
Planning for the Unforeseen
It’s a good idea to set aside a percentage of your renovation funds to cover items not included in your renovation contract, for things you discover you’d like to add once work is under way, like extra or upgraded features, furniture, appliances and window coverings or for contingency. A separate fund lets you make decisions easily, without having to renegotiate your financial arrangements or reapply for new funds.