Finance Your Renovation
Mike Donovan, Mortgage Broker and owner of Verico Coastal Mortgages Inc, has advised one of our co-owners how to finance their renovation. We value his expertise and experience and have since asked him to break down the scary stigma around financing your renovation and the steps required to obtaining funds.
First Things First…
Your first step when determining how to finance your renovation is a phone consultation with Mike. During this conversation you will discuss, information regarding your income, employment, existing mortgage and a desktop evaluation of your home. This information will determine the next steps and the preferable option for you.
Preferred Option – Cash
Mike explained to us that the most preferred option to finance your renovation is cash. The benefit of paying with your savings or readily available funds means you won’t be paying future payments. Everything will be paid there and then. However, let’s be realistic, it’s very unlikely many of us will have $100,000 in our bank accounts right now (Congrats if you do).
A Home Equity Line Of Credit
In this case, a home equity line of credit could be your best option to finance your renovation. This will allow you to draw out money and pay it back over time. This is typically in monthly interest only payments. Ultimately this means you’re not paying interest on a huge sum as you only need to advance the funds when required. However, not everyone will have this as a viable option due to a number of factors which include lack of equity or provable income.
Refinancing Your Mortgage
Refinancing your mortgage is another option and one that could be preferable if you do not qualify for a line of credit. It’s a particularly good option if it means that you’ll get a lower interest rate in the process. It’s important to note, if you have a low income, it’s unlikely you’ll qualify for this option with a big bank or credit union.
Alternative financing could be the best option to finance your renovation if you have issues qualifying and plan to sell after your renovation. You can gain this type of loan from alternative lenders and private investors. They tend to have higher interest rates and fees. This is a good option for people with low credit ratings or a low income. Upon completion of your renovation the goal would be to realize a large enough gain after sold to offset the borrowing costs.
Construction loans are used to make major renovations. They are normally advisable if the renovation will cost more than the equity that you have in your home. This is a short term loan and the money is released as the work is done. This loan is then converted into a mortage after the build out is complete.
Credit Cards can help you cover smaller renovations of around $50-60k or parts of a larger renovation. However, they typically carry higher interest charges than the options discussed. You wouldn’t want to carry large balances for an extended period of time. It is however, a great way to rack up some points on your card and earn something back such as flight tickets.
A Simple As That
This is a high level overview to give you an insight into the different options when considering financing your renovation project. It may seem scary or intimidating, however, all it takes is a quick phone call to establish your next steps in a transparent and professional manner. Contact Mike or a Mortgage adviser of your choice and discuss your options further, as every case can differ.
Take the first step today and contact Mike here.