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Major Home Renovations: Here Are Great Ways to Finance Them!

by | Mar 22, 2022

Updating the home is something many people want to achieve, especially over the past year or so. A change of pace plays a huge role in the mental health of a person. Sometimes, it’s also just a matter of wanting to switch things up or update styles.

What Kind of Home Renovations Are Considered Major?

1. Major Renovation Area: the Basement

Finishing a basement can mean creating a bedroom for your children, a movie room for entertainment, or an apartment for extra family members. This added space can take a lot of work to design and build.

2. Major Renovation Area: the Bathroom

Bathroom renovations are less extensive than kitchen renovations, but they can still involve plenty of plumbing, or require major demolition, which often makes it necessary to shut off the water and electricity in order to work on the structure. Bathroom renovations can help a family increase its comfort and luxury, and are often done to help the homeowner save water and electricity.

3. Major Renovation Area: the Kitchen

Kitchen renovations are the most common type of major home renovation, and the best way to add value if the home were put up for sale. A common reason for doing a kitchen renovation is to update appliances, cabinets, and countertops. However, other renovations can be done at the same time as a kitchen renovation.

Major Home Renovations Will Need Financing

The moment you make the decision that your home needs an upgrade, it doesn’t matter if you’re selling it or living in it. You need to start thinking about the financial aspect almost immediately. There are many options for financing home renovation projects—but the challenge is determining which option is best for you. This can be a daunting task, but it’s also one of the most important steps you’ll take.

Can You Afford Renovations Right Now?

During the home renovation financing process, you must decide how much you can afford to borrow for the renovations before choosing a lender or type of financing plan.

If you can’t afford the payments, your credit rating will suffer and your lender may try to sell your mortgage loan to an investor. If you decide to borrow to pay for renovations, you need a plan to pay back that money, including a budget and an estimate of how long it will take you to finish the work. Remember that when you borrow money to renovate, a lender will look at your monthly capacity for an extra mortgage payment.

Some of the best ways to finance major home renovations are outlined below:

Finance Major Home Renovations By Refinancing Your Mortgage

In some cases, homeowners refinance the terms of their existing mortgage, amortization, interest rate and the amount included. This is where they get the funds to get the renovations they want done. That way, there’s more funds for them to borrow and they have a longer timeline in terms of being able to pay it all back. Payments are also as low as possible for the larger amount over time.

Refinancing a mortgage, in a nutshell, adds more of the original loan amount of the home’s purchase. The new mortgage amount simply gets rolled into the mortgage’s existing balance. Refinancing your mortgage is beneficial in a few ways. First, you can make your monthly payments smaller, due to a lower interest rate. Second, you can borrow money to do home renovations without worrying about getting a new mortgage. And third, you know exactly how much you can borrow and how much money you’ll have to pay back each month, since the amount of money and your interest rate are set.

Finance Major Home Renovations With An Unsecured Line of Credit

A personal line of credit is a line of credit that you have with a bank for a small loan. When you sign up for a personal line of credit, you select your borrowing amount, and the interest rate starts at zero percent. As you repay it, the amount that you borrow gets smaller, meaning less interest is charged. 

It should be noted that since these are not secure, the interest rates of these are considerably higher. 

Finance Major Home Renovations With A Credit Card

Using a credit card to finance home renovations is not the best option available. Interest rates for credit cards are high, and credit cards are easy to get, but they also come with a hefty fee. The interest rate is usually around 19.99 or higher. Any residual charges that haven’t been paid off by the time the month ends will have a considerable fee on top of them as a result.

Finance Major Home Renovations With A Home Equity Line of Credit

Renovations are costly endeavours, and renovations after ten years can be a major pain: homeowners often have to pay for home equity loans or lines of credit to fund them. The major benefit of getting a loan like this is that it gives you access to the equity that you’ve built up in your house over ten years.

Accessing home equity is a great option in terms of financing major home renovations. Home equity is simply the difference between the present value of your home and what you currently owe on your mortgage.

The availability of home equity allows you to access money during your life cycle so that you can meet your needs at lower rates. Canada’s recent price increase when it comes to homes actually comes in handy here, since the interest rates today are notably low.

Finance Major Home Renovations With A Loan From Loved Ones

While borrowing from family members or friends isn’t available to everyone, it’s one viable option for obtaining capital. The positive side to borrowing from friends is that you can set terms for the rate of repayment.

Conclusion

Selecting the right financing option is important when completing a major home renovation. Thankfully, there are a number of options available in order to achieve this. This includes an unsecured line of credit, a loan from loved ones or refinancing one’s mortgage.

Looking for the best personal loans you can take on? Reach out to Get Approved Canada today! We’re your Canadian loan specialists from coast to coast.

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