R&R… Refinance & Renovate

A well know Toronto scenario: “Our tiny bungalow is now worth $1M dollars! We should sell it!…” Which then begs the question – “Where would we go – what could we buy for $1M?”.

As the value of property goes up – so too do the costs associated with buying and selling. Legal fees, the cost of selling and (most impactfully) the Land Transfer Tax can add significant costs to moving homes. So it’s no wonder that renovations are on the rise in Ontario.

The Star recently reported that the amount of money spent on home renovations and repairs now exceeds new home construction – with Ontario accounting for almost 40% of all Canadian renovation dollars spent.

So if you’re debating whether to “love it or list it”… and leaning towards staying put and fixing up, here are some financing options to consider.

The most common way to borrow to renovate is by accessing equity in your home. This can be done by setting up a Home Equity Line of Credit, or by refinancing (increasing) your existing mortgage. Both of these options are relatively simple and inexpensive, however limit your borrowing to 80% of your home’s value.

What if you are already near 80% of your home value though? What are your options then?

Refinance Plus Improvements is a program that let’s you borrow money based on the future, improved value of your property. For example, if your home is worth $500K, you already have a mortgage of $400K (hence 80% of the present value) and you want to replace your kitchen and finish your basement – your only decent option is utilizing Refinance Plus Improvements program.

Here’s how it works. You would present your mortgage broker with the plans and estimates of your renovations. In certain cases, an appraisal may be required. The bank will approve your mortgage and give you a green light to start renovating. Once the renovations are complete, an appraiser will confirm that renovations have been done according to the original plans. If satisfactory, the bank will release 80% of the funds which you can then use to pay your contractors.

Remember, the total mortgage cannot exceed 80% of the property value, that’s why you are responsible for 20% of the renovation cost.

Renovations don’t have to be completed by licensed contractors. You can use the program to finance the material and do the renos yourself.

For the details of the program, please contact me directly.