How to Finance Your Home Renovation

Planning a home renovation comes with lots of factors to figure out, and how you’re going to pay for it is a big one.
Thankfully, there are many home renovation financing options out there, so here’s a breakdown (information courtesy of CMHC, the Canada Mortgage and Housing Corporation).

  • Your own resources: If you feel financially stable to do this, you may be able to pay for your project out of your own pocket.
  • Credit card: CMHC says credit cards can be used to pay for materials for smaller renovations, but reminds people to be careful not to carry the balance for too long.
  • Personal loan: According to CMHC’s website, “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: According to CMHC this is a popular choice for home renovation financing in Canada. It is an ideal option for long-term or ongoing renovations because you can access your funds at any time.
  • Secured lines of credit and home equity loans: CMHC says, “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,” says CMHC.
  • Financing improvements upon-purchase: CMHC says that it can be advantageous to finance your home renovations at the time of purchase by adding their estimated costs to your mortgage (if you’re planning to renovate a home you’re about to purchase, that is).

Before you start your project, the CMHC suggests talking with a financial advisor to make sure you understand the home renovation financing options available to you so you can make a fully informed decision.

For more information, see CMHC’s tips here.

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