Home Renovation Financing Options
Financing options can be a crucial part of making home renovations feasible. We’ll explain some of the common financing options below.
The following details have been put together to show the range of financing options and is for information purposes only. The exact details and terms of each option vary between institutions — speak with your financial advisor and/or mortgage broker to determine what works best for you.
Home Equity Loan
A home equity loan allows homeowners to borrow a lump sum against the equity they have in their home. Typically, banks will allow you to borrow up to 80% of the value of your home. They offer fixed interest rates and structured repayment terms.
- Benefits: Lower interest rates, many options, and predictable monthly payments
- Considerations: Less flexible than a line of credit, requires sufficient home equity and good credit
Home Equity Line of Credit (HELOC)
A HELOC provides a flexible line of credit based on the equity in the home. They can allow credit of up to 80% of your home's value and are deal for large, ongoing expenses. There are many HELOC products available with varying terms and details.
- Benefits: Flexible borrowing and repayment options, only pay interest on the amount of money you use, some may feature an extended draw period and repayment period, interest-only payments during the draw period, and more
- Considerations: Variable interest rates, potential for fluctuating monthly payments, requires sufficient home equity and good credit
Mortgage Refinancing
Renegotiate the terms of your existing mortgage to access capital. Typically, you can access up to 80% of the equity you've built. This is best done at the end of your current mortgage term to avoid penalties.
- Benefits: Low interest rates (mortgage rates) and extended repayment terms
- Considerations: Less flexible than a line of credit, closing costs and fees associated with refinancing
Personal Loans
Personal loans are unsecured loans received as a lump sum. They feature fixed interest rates and structured repayment terms.
- Benefits: No need for home equity, fixed interest rates, and predictable monthly costs
- Considerations: Less flexible than a line of credit, higher interest rates compared to secured loans
Credit Cards
Credit card financing is an option, but recommended for smaller renovation projects or deposits due to high interest rates.
- Benefits: Convenience and potential rewards or cashback
- Considerations: High-interest rates and the risk of accumulating debt
PRO TIP: When using high-interest financing, plan to only use that funding for a short period of time (e.g., 2-3 months).
Once the renovation is complete, refinance your property (the value of your home may have gone up) and you can use the extra funds from the refinance to pay off your high interest credit. Talk to your mortgage broker to help you put this plan together.
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