Financing Your Renovation

Once you have decided to renovate your home, you need to determine how you will pay for it, and how much you are willing and able to spend.

If you intend to borrow money for your renovation, it's a good idea to talk with your lender before you starting making firm plans. Find out how much you can borrow and what options are available to you, and get pre-approval for your loan. Then you know how much you have to spend and are better prepared for detailed discussions with your renovator.

Even if you intend to pay cash from savings or the sale of assets, consider talking with your lender first-you may do better by borrowing the funds for your project.

Here are some of the options for financing your renovation project.

• Personal line of credit. This is one of the most popular financing options for smaller renovations and is also ideal for on-going or long-term renovations. With one application, you establish a revolving credit line that you can access at any time, up to your approved limit. An itemized monthly statement lets you keep track of your renovation expenses, and you only pay interest on the funds you use. As you pay off your balance, you can re-borrow the unused funds without reapplying. And you'll always enjoy a rate that's lower than most personal loans and credit cards.
  
  
• Personal loan. An instalment loan lets you budget regular payments at a fixed or variable interest rate for a set period of time. Repayment periods typically vary from one to five years. However, once you pay off your loan, you no longer have access to the credit and will have to go through the approval process again if you need to borrow more funds.
  
  
• Secured lines of credit and home equity loan plans. These lines of credit and personal loan plans are secured by the equity in your home and are among the most economical ways to fund a renovation if you have built up equity in your home. They have all the advantages of the unsecured versions, but offer preferred interest rates. While there is typically no cost to open a secured line of credit or home equity loan plan, legal and appraisal fees usually apply.
  
  
• Homeowner mortgage. If you have an existing mortgage, it can be advantageous to refinance it, particularly if you're planning a major renovation and want to spread the cost over a long period. You may be able to borrow up to 90% of the value of your home, less the outstanding balance of any existing mortgage. This option allows you to take advantage of mortgage rates, which are often substantially lower than credit card and loan rates. Loans of 80% or more of the appraised value of your home must be insured against borrower default; the mortgage insurance premium can be paid upfront or added to the mortgage amount.
  
  

Lenders suggest that you set aside a certain percentage of your renovation funds to cover items not included in your contract with the renovator. Once the work is underway, homeowners often discover that they would like to add things, such as extra or upgraded features, furniture, new appliances and window coverings. With a separate fund, you can make those decisions easily, without having to renegotiate with your lender.