You have many options for financing home renovations, each with pros and cons. Explore them all to decide which is best for you. Then talk to your lender. They can further explain your options, tell you how much you can borrow and pre-approve your loan.
Remember: It’s a good idea to set aside money for unexpected costs. This allows you to adjust your plans without renegotiating your finances or reapplying for new funds.
Savings or a credit card
You may want to pay for the materials for smaller projects yourself, especially if you’re doing the work yourself. You can also use a credit card to cover materials. But be careful not to carry the balance for too long. Credit card interest rates can top 18%.
A personal loan typically has a lower interest rate than a credit card. You repay it in regular payments over a set period, usually 1 to 5 years. Once the loan is repaid, you must reapply if you wish to borrow more.
Personal line of credit
Consider a line of credit for ongoing or long-term projects. You can access funds as you need them, and you only pay interest on the amount you use. Interest rates for a personal line of credit are lower than on a credit card. And unlike a personal loan, a line of credit lets you re-borrow funds, up to the line of credit’s limit, without reapplying.
Secured line of credit and home equity loan
These offer all the advantages of regular lines of credit and loans and come with preferred interest rates. But because they’re secured by your home’s equity, they are subject to set-up costs including legal fees.
Refinancing may offer some advantages when looking to complete major renovations. You may access a better interest rate than on a credit card or loan, but you’ll incur set-up costs. Repayment is spread over a long time period.
Financing upon home purchase
If you’re planning major renovations to a home you’re about to buy, think about adding the cost to your mortgage. You’ll pay a lower interest rate than with a credit card or loan.
Grant and rebate options for energy efficiency
Federal, provincial and municipal governments and local utilities may offer grants and rebates for energy-saving renovations. For example, CMHC Eco Plus offers a premium refund of 25%. You may be eligible if you buy, build or renovate for energy efficiency using CMHC-insured financing.