A Renovation Budget
A renovation budget doesn’t have to be boring – think of it as a gateway to the great new place you’re creating.
You first need to ask yourself some questions...
Do I plan to stay in this house long term or do I plan to sell in the near future?
If you are planning to sell in the next 3-5 years, then you should be careful not to over-invest in home improvements.
- Some types of renovations can have a significant impact on the value of your home, will you see a reasonable return on the investment you are making when you sell?
- Upgrades should be appropriate for the area. For example, if homes in your area tend to have remodeled kitchens and baths with high end finishes, you’ll want to try to fit within those expectations. The opposite can also be true. Investing in high-end finishes when comparable homes do not have them may not pay off when it’s time to sell.
- Focus on projects that will add curb appeal for a low cost, such as fresh paint, clean landscaping, and minor cosmetic upgrades to kitchens and bathrooms. Also address any home maintenance issues that would come up on a potential buyer’s home inspection. Don’t invest in expensive upgrades, and consult with a reputable real estate agent about what would make your home sell in your area.
If this is the home that you hope to stay in for the next 10-20 years, then your decisions become more about which investments are worth it to you, based on how you want to use and enjoy your home for the years to come.
- Evaluate the structure, systems and general condition of your house. List the repairs and replacements likely to be required over the next two, five and 10 years. If necessary, be prepared to make trade-offs between lifestyle improvements and work needed to keep your home in good shape.
Where will I get the financing for this renovation?
I would recommend a home improvement account where a percentage of your earnings go into a savings account that will allow you to maintain and upgrade your home as needed. It can seem painful in the beginning but when the furnace or water heater need to replaced or the family increases and you need to finish the basement those savings will be a godsend.
Sit down with your lender and discuss the amount you can reasonably afford and the most suitable financing options. Remember that your budget should cover everything that may arise from the renovation, including such items as new drapery, blinds, furniture and appliances.
- Personal loan: With a personal loan, you pay regular payments of principal and interest for a set period, typically one to five years. You also have the option of a fixed or variable interest rate for the term of the loan. The interest rate on a personal loan is typically less than that of a credit card. Unlike a line of credit, once you pay off your loan you will have to reapply to borrow any new funds needed.
- Personal line of credit: This is another popular choice for financing renovations. It is ideal for ongoing or long-term renovations since it lets you access your funds at any time and provides a monthly statement to help track expenses. A line of credit offers lower interest rates than credit cards, and charges interest only on funds used each month. And, as you pay off your balance, you can access remaining funds, up to the line of credit’s limit, without reapplying.
- Secured lines of credit and home equity loans: These options offer all the advantages of regular lines of credit or loans, but are secured by your home’s equity. They can be very economical, since they offer preferred interest rates, however initial set-up costs including legal and appraisal fees usually apply. Lines of credit and home equity loans are usually limited to 80% of your home’s value.
- Mortgage refinancing: When funding major renovations, refinancing your mortgage lets you spread repayment over a long period at mortgage interest rates, which are usually much lower than credit card or personal loan rates. This type of financing can allow you to borrow up to 80% of your home’s appraised value (less any outstanding mortgage balance). Initial set-up costs including legal and appraisal fees may apply.
- Financing improvements upon-purchase: If you’re planning major improvements for a home you’re about to purchase, it may be advantageous to finance the renovations at the time of purchase by adding their estimated costs to your mortgage.
- Credit card: Likewise, you can use your credit card to pay for materials for smaller renovations. But be careful not to carry the balance for too long; credit card interest rates can exceed 18%.
Don’t forget, look for green initiatives, you may be eligible for rebates.
Across Canada, renovation grants and rebates are available from the federal and provincial governments and local utilities, especially for energy-saving renovations. If you qualify, they may help pay for some of your project’s costs.
- CMHC Mortgage Loan Insurance for Energy-Efficient Homes: 10% CMHC mortgage loan insurance premium refund, and a premium refund for a longer amortization period
- ecoENERGY Retrofit — Homes: grants of up to $5,000 to offset the cost of making energy-efficiency improvements.
- Provincial and Municipal Entities Offering Grants and Incentives
- Rebates and Incentives for Selected ENERGY STAR® Qualified Products in Canada
Here are some links to some great articles about home renovations.