by Farhaneh Haque
In my August 9th Blog, Fixer Upper or Move In Ready, we weighed the pro and cons of each:? buying a property which requires work or finding your dream home with all the fits and finishes you like and can see! As a follow up, this week?s blog will dive deeper into the Fixer upper and explore financing options for a home renovation.
Balance wish list and budget
Finding the right balance between your ultimate wish list and what you can comfortably afford right now may be a big part of your decision of what to buy. Buying a home that might need a bit of work can give you the ability to transform it into your dream home, especially if you?re willing and able to take on some of the projects yourself. However, it?s important to understand the costs of the upgrades you intend to make and factor those in when deciding on a price range for a home that is affordable to you.? ?
The benefits of renovating versus moving: If you?re not looking to change your location, renovation can be a smart and affordable way to upgrade your home to better suit your current lifestyle. You will also avoid the real estate commissions, land transfer taxes, legal fees, closing and moving costs that come with moving to a new home.
Financing a renovation: As you collect memories in your home, over the years you are also building equity; a home equity line of credit or a mortgage refinance allows homeowners to use the equity in their home to borrow money to finance a renovation. Crunch the numbers with the help of a mortgage specialist, who can help you decide if this is the right investment for you.
Choose renovations that save you money in the long run: Some renovations can save you money on your energy bill, qualify you for future tax credits or even save you money on insurance premiums.
Using the opportunity to revisit your mortgage terms: Your home needs a bit of revamping to meet your needs. With a little reflection, you may find your current mortgage needs a little updating too. While you are exploring financing options for a renovation, look at your current mortgage to make sure it?s still the best option for you. A few small changes could give you extra flexibility, save you money or help you pay off your mortgage years earlier.
Financing Options
The most suitable financing solution will depend on a number of variables. These include the total cost of the renovation, your household affordability and monthly cash flow, payment preferences, amount of equity available in your property, etc. Here are some financing solutions with ?features you can explore with your advisor before deciding on the best option:
| Credit Card | Loan | Unsecured Line of Credit | Mortgage | Home Equity Line of Credit | |
| Set up Cards | Annual Card Fees | No set up fee | No set up fee | Varies by Province | Varies by Province |
| Access to funds | As needed card, cheques, cash advance | One advance in full | As needed cheques, cash advances, transfer to account | Single advance, Progress Draws or Purchase Plus Improvements | Access to funds as needed ? cheques, cash advances, transfer to account |
| Benefits | Detailed monthly statements | Fixed or variable interest rates for terms of? | Detailed monthly statements | - Weekly, ?? Bi-weekly, Semi-monthly? - Set principle & interest payments - Fixed rate for 6 months, 1 to 7 year terms - Variable rate for 5 years? - Open or Closed) | - Weekly, ? Bi-weekly, Semi-monthly or Monthly - Float: Minimum of interest only payments - Fixed: Set principal & interest payments Fixed rates based on 1 ? 5 year mortgage rates |
| Payments | Monthly payments ? minimum of 3% of balance outstanding | -Weekly, Bi-weekly, Semi-monthly, Monthly -Fixed: set for the term -Variable: set principal plus variable interest monthly for the term | - Weekly, ? Bi-weekly,? ? monthly, ? Monthly - Minimum payment of 3% of outstanding balance | - Up to 95% of the appraised value of your home as a purchase transaction - Up to 80% of the appraised value of your home as a refinance transaction | -Up to 65% of the appraised value of your home -Can be set up as a 1st or 2nd behind an eligible 1st mortgage |
Of course, the best-suited product will vary with the extent of the renovation. For example, a credit card, unsecured line of credit or loan option may be suitable for smaller or less expensive renovations, or perhaps for those expecting to receive funds from other investments in the near term in order to pay these off; whereas a larger or more expensive renovation will require financing with lower interest rates and an amortizing function like a mortgage refinance. Ultimately, the decision will ride on a number of dynamic variables that will be unique to your situation. The good news is that there are financing solutions available to fit any renovation budget!
Source: http://blog.zoocasa.com/2012/08/smart-ways-to-finance-home-renovation.html
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