Financing a Home Renovation

The cost of renovations of a home are often better bundled into a mortgage rather than paying the high interest rates of a consumer loan.  It sounds straight forward?

Yes, but you need a to know your full mortgage options.

Real life example:

I am currently arranging a renovation mortgage for clients whom I assisted two years ago when they bought their first house. They recently approached me asking for a refinance. A refinance would involve breaking the old mortgage and paying the penalty and then getting a new mortgage with a higher balance. Before proceeding with their request, we explored all options first. 

1.  The refinance they originally requested would involve over $6000 in penalty costs; and the new mortgage would be at a slightly higher rate than the original mortgage.  This option is doable and while there are costs, it is still reasonable.

2.  A second mortgage at 3.8% fixed rate would be a better option. They would not have the penalty to pay because they would leave the first mortgage intact. The rate is excellent for a second mortgage and because the amount they need for the renovation is about $50 000, the slightly high rate would not cost them a lot in dollars.

3.  A second mortgage as a home line of credit was my recommendation. The rate worked out to be 3.2% (P=0.5%) and the great thing is that they only borrow money as they need it. For example, if stage one of the renovation costs $10 000, then they will only withdraw $10 000 from the line of credit until they need more. The line of credit is also larger than their anticipated costs. This gives them the opportunity to access the line of credit if they decide to do other renovations in years ahead.

Not surprising, the clients agreed that option three was their choice. They were not aware that they had this choice before doing our consultation.

The beauty of the process is that at no point were these home renovators pressured into doing anything. Making an inquiry to have your mortgage options explored, can only be beneficial. 

Better Advice, More Choices and Peace of Mind!