Many homeowners are quite active when it comes to home renovations no matter how large or small the job. Some like to make major renovations such as adding on additional living space while others prefer to remodel their kitchens and bathrooms, finish their basements or build a backyard deck. There are numerous ways to renovate your home, but the one thing they all have in common is that you will need to finance the project somehow.
When we had a major renovation to our home a few years ago, we decided to add an addition to our home. We searched for several weeks for the best home addition contractor in Toronto and finally found one that turned out to be fantastic.
Just remember that just because something costs a lot does not mean it’s expensive. If you are choosing exotic hardwood for your floors or cabinets don’t just go for the cheapest price as you’ll usually end up getting a poor quality version of it or even a fake version of it. You are better off choosing a high quality version of a cheaper grade of wood in this case.
The cost of the renovating will depend on the size and nature of the job and the materials and labour involved. Renovation costs can vary widely, depending on the project and finishes involved. Using high-end finishes can greatly improve the look and quality of the project but will also greatly add to the total cost. If you’re wondering how to pay for your next home renovation project we have some financing suggestions below.
For those of you who have it laying around, cash is the simplest way to finance your project. However, many families like to keep it for a rainy day in case of emergency. If you do happen to have the money available though, this means your home improvements have been paid for as soon as they’re completed. If you prefer to pay cash you may want to renovate in several steps instead of all at once as you’ll be more inclined to stay within your budget. If you are unable to obtain traditional financing for your home renovation project, you can also look at alternative lending options and go for a private mortgage.
You can always use your credit cards to pay for home improvements, but be sure to know exactly how much interest you’ll be charged if you don’t pay the full balance each month. Credit cards are often ideal for smaller renovations or materials only as the payments can be paid off month by month or all at once. Credit cards are also ideal if you have the cash to finance the project, but would like to earn the credit card reward points.
Refinance your mortgage
You could always cover the costs of the project by refinancing your current mortgage. This option may enable you to find a lower interest rate and monthly payment than your existing mortgage. With lower payments, you could use the extra cash to pay for the renovations. You may also be able to borrow the money to pay off present current mortgage as many lenders will allow you to borrow up to 80 percent of the value of your home. This is typically known as a cash-out refinance and is popular for those who are attempting to increase the value of their home with the renovations. Just remember your home is used as collateral and it comes with long-term debt. Check out this place to find low mortgage rates if you are in Canada.
Home equity line of credit (HELOC)
If you prefer to leave your mortgage as it is, you may want to utilize a home equity line of credit. This will enable you to borrow the money when it’s needed and repay it on your own schedule as long as you cover the minimum payment each month. You can generally borrow up to 80 percent of the home’s value and the monthly payments cover the interest and some of the principal. You usually have about 15 years to pay the money back and the interest is typically tax deductible up to $100,000.
Home equity loan
This differs from a home equity line of credit as you will be borrowing a specific amount of money and will be paying it back over a fixed period of time. These loans often range from five to 30 years and are also known as second home loans. The interest payments are also tax deductible.
If you don’t want to use your home’s equity or refinance your mortgage you can always apply for a personal loan. This is sometimes ideal for homeowners who have an excellent credit rating, but the interest rates may be a bit higher than home equity financing. In addition, you may need to pay the money back sooner with higher monthly payments. However, in the long run, you’ll likely pay the least overall interest with this option.