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Whether your home improvement projects consist of energy saving improvements, adding a new deck or finishing your basement, an Advanced Alternative Lending loan is one way to finance your home improvement.  Because most home improvements increase your property value, they often pay for themselves over time.  Did you know that improving a home can also create more equity that can then be used to finance other investments?  Improving or renovating a home can be done for a number of reasons, but the most common reason tends to be for personal enjoyment. Opportunity and timing don’t always match up, and Advanced Alternative Lending can assist in covering short or longer term gaps in financing when considering larger or smaller home improvement projects. Below you will find a few home renovation financing options. 

Home Renovation Financing Options

There are many different reasons to renovate a home: to save energy (and save on utility bills), to make room for your growing family, improve safety, increase resale value, or simply to bring a fresh new look to your home. There are also a number of different ways to finance your renovation. Read on to obtain information for a number of financing options, along with practical advice to consider before starting your renovation project.

Before You Begin

Whether you intend to finance your renovation yourself or borrow money, you should consult a financial advisor and your lender before you make firm plans. They can help you understand your options, and advise you on how much you can borrow and even pre-approve you for a loan. This will help you formulate a realistic plan.

Explore Your Options

Your own resources: For smaller renovation projects, you may consider self-funding material costs, especially if you plan to do the work yourself.

Credit card: Likewise, you can use your credit card to pay for materials for smaller renovations. However, use your discretion with carrying the balance for a long period of time, as credit card interest rates can exceed 18%.

Personal loan: With a personal loan, you are required to pay regular payments of principal and interest for a set period, typically one to five years. Personal loans offer the option to choose a fixed or variable interest rate, and rates on these loans are often less than those of credit cards. Unlike a line of credit, once your loan is paid, you will have to reapply to borrow any new funds needed.

Personal line of credit: Personal lines of credit are a popular choice to finance renovations. This product is ideal for a long term project, as funds are readily accessible and a monthly statement to track expenses is provided. Personal lines of credit offer lower interest rates than credit cards, and interest is only charged on funds used each month. Another advantage to a personal line of credit is the ability to access remaining funds as the balance is paid off, without re-applying.

Secured lines of credit and home equity loans: These offer all the advantages of a regular loan or line of credit, but are secured by existing equity in your home. Secured lines of credit offer preferred interest rates, but it is important to note that set-up costs such as legal or appraisal fees may apply. Lines of credit and home equity loans are usually limited to 80% of your home’s value.

Mortgage refinancing: When funding major renovations, refinancing your mortgage allows you to spread repayment over a long period at mortgage interest rates, which are usually much lower than credit card or personal loan rates. This type of financing gives you the option to borrow up to 80% of your home’s appraised value (less any outstanding mortgage balance). Initial set-up costs including legal and appraisal fees may apply. If you need to tap into more of the equity in your home, loans of up to 85% of your home’s value can also be provided when insured by CMHC Mortgage Insurance.

Financing improvements upon purchase: If you’re planning major improvements for a home you’re about to purchase, it may be beneficial to finance the renovations at the time of purchase by adding the estimated costs to your mortgage. CMHC Mortgage Insurance can help you obtain financing for both the purchase of your home and the renovations — up to 95% of the value after renovations — with a minimum down payment of 5%.

Other Considerations and Options

Planning for the Unforeseen

It is recommended to set aside a percentage of your renovation funds to cover items not included in your renovation contract. There may be items you discover you’d like to add once work is underway, like extra or upgraded features, furniture, appliances and window coverings. A renovation can also uncover necessary repairs you didn’t plan for.  A separate fund allows you to make decisions easily, without having to renegotiate your financial arrangements or reapply for new funds.

Grants and Rebates for Energy-Saving Renovations

All Canadians have access to renovation grants and rebates from the federal and provincial governments and local utilities, especially for energy-saving renovations. If you qualify, they may help pay for some of your project’s costs. Search “Grants” at the CMHC website for more details.