Is it a good idea to finance renovations to your house using your mortgage?

Quebecers love to renovate. And in an ideal world, we would all have the cash flow we need to make the desired property improvements without having to borrow. However, this is not always the case.

Fortunately, your private mortgage can help you with your home improvement plans. Here’s how.

Mortgage refinancing

When you already own a home, you can use mortgage refinancing to finance your renovations.

This type of loan allows you to obtain additional funds quickly using the equity in your property.

Note that the sum of your current mortgage and the additional amount desired must be less than or equal to 75% of your property’s market value.

Carrying out renovation work through mortgage refinancing is advantageous on two levels. First, the interest rate on the refinance loan is relatively low – significantly lower than that on a credit card, for example.

Second, this refinance loan, which can be either fixed or variable rate, can be repaid over a much longer period than a personal loan.

Financing your renovations at the time of home purchase

If you are about to acquire a new home, you can choose to build the cost of renovations directly into the initial mortgage you apply for.

Using this method, the eligible purchaser can borrow up to 80% of the projected value of the house following the renovations.

This type of financing has many of the same advantages as mortgage refinancing: payments are amortized over several years and the interest rate is also very advantageous.

To obtain this type of loan, you must be able to justify the cost of the anticipated renovations when applying to your financial institution. And once the renovation work is complete, you must notify them of its completion and/or present a post-work inspection report, as well as meet all other prerequisites.

Renovation financing can be accessed even with a down payment as low as 5% of the property’s purchase value.

A second mortgage to finance renovations

If you are a current homeowner and have good equity available on your property, taking out a second mortgage can be a great option for financing your renovations.

This type of financing, if provided by a private lender, does not require a minimum credit score or proof of income. Financing can be granted very quickly – no need to go through the lengthy process of traditional banks.

Note that the sum of the first mortgage loan and the amount required for the renovations must be less than or equal to 75% of the property’s market value.

Other methods for financing renovations

Mortgage refinancing and financing at the time of purchase are not the only options available for financing renovations. Other ways include:

• a home equity line of credit
• a personal loan
• using your credit card

Each of these methods has its own particular advantages and disadvantages. Contact us for more information.

How to assess the relevance of your renovation project

Before embarking on any renovations, it is always prudent to consider the following criteria in order to determine whether the work will bear fruit:

• the urgency and importance of the renovations
• the cost of the renovations
• the added value to the property once the renovations have been carried out
• the time investment required by the renovations

Mortgages to the rescue at renovation time

Mortgage refinancing and financing at time of home purchase are great tools for financing renovations to your home. Whether it is for maintenance, repairs or improvements to your home, these two financing options offer advantages that are hard to resist.

We encourage you to discuss your renovation financing needs with your private mortgage lender or financial institution.