Some 56% of Canadian homeownersopens a new window in your browser will likely choose to spruce up their space this year, spending an average of $11,800 on renovations. That's no small amount of cash to drop on top of a mortgage.
Once you have an estimate of how much your renovations are going to cost, you'll need a plan for paying for the project. Here are 4 financing options available to homeowners.
Loan options for remodels
Personal loans: A bank loan is often the first choice for individuals with healthy credit scores and income. Unlike credit card debt, personal loans have a specific monthly payment for a set amount of time. You can also pay more towards your loan each month without penalty to decrease your interest costs.
Home equity loan: With this program, you can access up to 80% of your home's value to consolidate debt or renovate your home. This option is ideal for homeowners who don’t want to balance several debts and instead, would rather have their home renovation costs and mortgage rolled into one payment with competitive interest rates and an assured payoff date.
Home equity line of credit (HELOC): A home equity line of creditopens a new window in your browser allows the homeowner to borrow against the principal amount of the original mortgage that has been paid down. It’s considered revolving credit. This means you can borrow money against your home, pay it back, and borrow it again when you need it. You can borrow up to 65% of your home's market value. Interest rates are usually lower than that of personal loans and credit cards, depending on your credit history.
Some banks also offer re-advanceable mortgages; a type of HELOC that allows a borrower's line of credit to be increased as mortgage payments are made, since the mortgage principal is reduced with each payment.
Credit cards: If you can secure a credit card with a promotional annual percentage rate and can pay off the balance within the promotional period (generally within six to 12 months), then this method will save you the most on interest. Another idea is to secure a credit card with a welcome bonus that rewards you after you spend a set amount in the first few months of opening your account. These cards may award increased points for making purchases in the months following your sign-up, allowing your remodel purchase to earn you more in return. You can also look for credit cards that offer bonus travel rewards so that you might earn a free vacation after your remodel is done.
3 ways to save on your remodel
Even with a secured financing plan, you could still shave hundreds of dollars off your remodeling costs with these three steps.
Shop and donate to Habitat of Humanity. Habitat for Humanity's ReStoreopens a new window in your browser sells gently used or new building supplies and home decorating items at a lower cost. With more than 100 stores across Canada, consider shopping at a ReStore location to see if they have the right items for your project. After your remodel is complete, donate your unwanted cabinets, furniture, light fixtures, and more. You may be able to save on trash removal and earn a tax credit to boot. For example, you can contact your local ReStore location to inquire about donation tax receipts.
DIY the demo. Some projects are safe to tear down yourself, such as an old deck, wall paper, and old carpeting. Partially gutting your kitchen or bathroom can also be done while avoiding plumbing and electrical issues. Depending on the size of the project, doing your own demo can save a few hundred dollars.
Ask for a multiple project discount. If you want to tackle more than one room, consider asking for a special deal. For example, if you are redoing the countertops in the kitchen, ask the contractor if there's a discount for installing the same countertops in a bathroom or laundry room. This same principle applies for using the same flooring or paint colour for multiple rooms.
Home renovations are a great way to make your home more enjoyable to live in, while also adding value and keeping your space up-to-date. While 86% of Canadian homeowners think that renovations can end up costing more than you plan for, having a solid financing plan and using money-saving strategies can keep your costs close to your original budget.