May Mortgage Moment
With a booming real estate market, low-interest rates and the rise of the home improvement trend, we started a new blog series to help navigate this unprecedented time. Wading through a plethora of information can be overwhelming, we know! So we enlisted Mortgage Consultant Meghann of The Mortgage Minds Inc. to walk us through various options when it comes to homeownership and home renovations.
Our initial article was all about Purchase Plus Improvements for first-time homebuyers. This next article is about financial options available for current homeowners to help fund home improvements. Welcome to our Spring Mortgage Moment.
Photo by Jacquie Troy Carter
They say that it’s ‘easier to renovate a home than neighbourhood’. ...so maybe you read our March Mortgage Moment and thought to yourself, ‘Hey, I’d like to renovate BUT love our neighbourhood. I don’t want to move, just want to improve. Wonder if there are any financial options for me?’
Well, you’re in luck! There are a couple of options to help you achieve the goal of improving your current home and making it the sanctuary you’ve been dreaming of using the equity you’ve already built up. Once you’ve determined that there is at least 20% equity in your current home and have made the concrete decision that your home improvements necessitate borrowing money, there are a couple of options to consider to get your project underway.
1. Home Equity Line of Credit (HELOC)
A HELOC is an appealing option to fund your home renovations, repairs or other household projects. Added onto your mortgage as an auxiliary type of loan, you’re able to use it all at one or as you need. You only pay interest on the portion that has been used. To note, it comes with a higher interest rate than your mortgage (usually a full percentage) but lower than other options like high interest credit cards.
2. Refinance
Simply put, this means restructuring your financial needs using the current equity in the house and including it into a new mortgage. The benefit to refinancing is that you’ll get a low interest rate (not paying any more than your current rate) and there is an opportunity to extend the amortization period to as much as thirty (30) years, therefore decreasing monthly payments.
3. Refinance Plus Improvements
With a refinance plus improvements mortgage, there is an 80% loan to value limit. Generally, the amount of how much you can borrow is based on a completed home appraisal plus the determined cost of home improvements. In other words, the loan amount is based on the predicted improved value of the property rather than the existing value up to 80%. This is where getting a reasonable quote from an experienced contractor is key to ensure accurate numbers for the proposed project are provided.
“Some people look for a beautiful place. Others make a place beautiful.”
Archive Project: Belgravia Custom Garage Suite
Archive Project: Rhatigan Ridge Bathroom Renovation
Investing in home and property renovations improves the livability and comfort of your home. Given the amount of time we’ve all been spending in our homes over the past year, we need to live in a space we can enjoy and feel safe in. Although you may not be thinking about selling at the moment, improvements and renovations will also increase the property value in the long run (which is never a bad thing!).
Of course, any of these options will depend on your financial goals and how long you are willing to commit to paying the money off. Talking with a trusted Mortgage Consultant like Meghann can help determine your budget, formulate an achievable strategy and ultimately, set you on the best course of action to create the home of your dreams without serious implications to cash flow.
Meghann can be found on Facebook and Instagram (@wendellmortgages). She will also be with us for our next Mortgage Moment when we discuss secondary home purchases.