When you decide to perform much-needed renovations on your home, you’ll probably start with the plans in your mind, a contractor to go with, and the will to succeed. Now, you need the money! For major renos and remodelling, the money required might not be immediately in your bank account, and you’ll have to find something extra to finance the work.
Taking out a loan is one of the ways you can make your home dreams come true. Here’s how you can make the most of your proposal!
Have a Plan
Many, if not most home improvement plans go over budget. This isn’t always because homeowners have eyes bigger than their stomachs; it’s because when you get into the inner workings of your home, snags often come unexpectedly. While we watch home renovation shows and marvel at the finished product, we often forget that every single project has (or is written to have) unanticipated issues.
So before you start this major project, take some time to prioritize and plan. Have a home inspection performed to find things you might not notice yourself. Remember, it’s a major expense that you will have to eventually pay back!
Look at all the places that can offer financial offers, not just the bank you keep a chequing account with. When it comes to taking out a loan, you have several options at your disposal, so check out the different interest rates and talk with financial planners.
The Line of Credit
When considering options, you’ll want a plan that charges the least amount of interest. Talk to your financial institution about opening a line of credit. This way, you can access only what you need as you need it, while paying interest only on the amount you use. The interest rate are also usually much lower than a credit card.
Home Equity Line of Credit
Another loan option is the home equity line of credit (HELOC). A HELOC is sort of like a mortgage-credit card combination, where a loan where your equity in the home is the collateral and the financial institution offers you a line of credit. Banks usually treat them as additions to mortgages, and you pay it back like a line of credit: what you take plus interest.
THe HELOC can be combined with a mortgage when you buy your home, and in this case are known as “readvanceable mortgages”. Basically, as you pay down your principal, more credit is freed up, so as you grow in your home, you can Warning: while it usually is the best option for home renovations, interest rates are variable and can go up.
Refinancing Your Mortgage
A lot of homeowners see refinancing their mortgage as an option to pay for the renovations, and under the right conditions it can be a worthwhile option. When you refinance your mortgage, you are paying your own and replacing it with a new one under new terms. If you think the refinancing will get you a lower interest rate, and you plan on staying in your home long enough to make it worthwhile, then go ahead. Just talk to your financial advisor and make sure you’re not getting in over your head!
Don’t Always See The Upgrade As A Money-maker
Financing a home renovation with the goal of increasing your home’s selling price isn’t always the wisest decision. If you’re completely remodelling an old kitchen, sure, but even then it has to be done with an eye to sell within two years at the most. After that, routine wear and the changing of decor trends could revert it back to an ordinary room with no real impact on the closing price.
Look at a remodel as an investment in how you see your home. Take this into account when asking for a loan, so you know what you can repay and what will be worth the expense. Always follow the directions of someone who knows what they’re talking about, and make sure to take on the plan that works best for your financial situation.