How to Finance Home Improvements in Canada

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Most homeowners in Canada rely on cash, savings or loans to finance home improvements. None of these methods are necessarily better than the other under ideal circumstances.

So you’re looking to make some improvements to your home? That’s a very exciting decision! Not only can home improvements help you feel more comfortable in your own home, but they can also increase the value of your house. But let’s be realistic – home improvements can be expensive.

According to HomeGuide, it can cost anywhere between $15-$60 per square foot to remodel a home. And if you’re only remodelling one room, it can cost between $100-$250 per square foot.

That’s a lot of money! For this reason, a lot of people choose to finance their home improvements. So let’s talk about five different ways you can do that in Canada:

5 Ways to Finance your Home Improvements in Canada

Credit Card

Credit cards are always an option to finance anything. The main benefit of credit cards is that they are easy to obtain. Almost anyone can get a credit card, regardless of their credit score. With that being, you’re also going to pay for using a credit card.

Credit card interest can be upwards of 18-20%, and if you’re not quick to pay off your debt, this interest can incur quickly – especially on large purchases. For this reason, credit cards should only be used for financing as a last resort. 

Personal Line of Credit

If you have good credit, your financial institution may allow you to take out a personal line of credit. These loans are open-ended and allow you to pay off and re-use the allotted funds as needed.

Personal lines of credit can range anywhere from $1 000 to $100 000, which is why many people use them for more significant loan requirements like home improvements. 

Like a credit card, lines of credit require you to make minimum monthly payments, which are generally charged as a percentage of the balance owed. For this reason, you’ll want to make payments regularly and pay off your debt as quickly as possible to avoid heavy interest fees.

Having said that, interest on personal lines of credit is usually significantly lower than those of credit cards. So opening a line of credit for your home financing is a better option than financing through a credit card. 

Home Equity Line of Credit

More commonly referred to as HELOC, a Home Equity Line of Credit is a line of credit secured by your home equity. In other words, you put your home up as collateral if you can’t make your monthly payments.

Because HELOCs are secured, they typically come with a lower interest rate than many other unsecured financing types. Most financial institutions will allow you to borrow up to 80% of the appraised value of your home through a HELOC.

So if you have equity in your home, this can be a great option. 

Refinancing your Home

Depending on how long you have had your mortgage, you may also have the option of refinancing your home. Also referred to as a “cash-out refinance,” refinancing refers to the option of replacing your current mortgage.

When you do so, you negotiate a larger loan with a new interest rate. You can then use the cash from the difference between your old and new mortgage to pay for your home renovations. 

While refinancing your home can be a good option for some, there’s also a lot of work involved. When you refinance your home, you need to have it appraised and pay for all the fees involved. You’ll also be extending the length of your mortgage, so you won’t have it paid off as quickly. 

Personal Loan

Personal loans can come from various sources, including banks, credit unions, private lenders, and even pawn shops. Personal loans are often used for larger purchases like vehicles or home renovations and can range in amount depending on the lender.

When you obtain a personal loan, you borrow a specified amount of money and agree to pay it back, with interest, during a specific time period. Interest amounts are determined and agreed upon between you and the lender.

In most cases, personal loans lenders will check your credit score, so you will need to ensure your score is high to obtain one.

What happens if you can’t pay back your loan on time?

Anytime you take out a loan, you need to consider your ability to pay it back. You should never take out a loan if you are not confident that you can make the regular monthly payments. 

Failure to make your payments by the specified date can drastically affect your credit, making it difficult for you to obtain a loan in the future. Extra fees can also build up, and depending on the type of loan obtained, the lender may be able to seize additional assets such as your vehicle.

Furthermore, if you miss too many loan payments, the lender can sue you for the debt.

If, for any reason, you are unable to make a payment for one month, or your payment will be late, be sure to contact your lender immediately to notify them. 

Should I consider financing my Home Renovations?

Whether or not you should finance your home renovation and how you should go about doing it really depends on your financial situation and the size of the job at hand.

The ideal way to finance anything, including home renovations, is to save up for it and pay upfront. This saves you from paying for years to come and from paying the interest associated with loans. 

With that being said, if you can’t afford to pay home renovations upfront (which many people can’t), there’s nothing wrong with financing your investment – as long as you can afford it. 

Will you be able to make your monthly payments on time? Is there anything that might prevent you from doing so? Will financing your project mean that you can’t afford other bills? Are there any unexpected finances that may arise? Will you be able to afford them if they do? 

If you are confident that you can afford to make your payments on time, financing your home renovations is a good option. Take the time to compare your different financing options to ensure that you find the best one to meet your needs. 

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Kareena Maya

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Kareena Maya is a freelance writer focused on the personal finance and travel spaces. He frequently writes about credit cards, banking, student loans, insurance, travel rewards and more. His work has been featured in publications such as Forbes Advisor, Bankrate, Credit Karma, Finance Buzz, The Ascent and Student Loan Planner.

Kareena Maya is a freelance writer focused on the personal finance and travel spaces. He frequently writes about credit cards, banking, student loans, insurance, travel rewards and more. His work has been featured in publications such as Forbes Advisor, Bankrate, Credit Karma, Finance Buzz, The Ascent and Student Loan Planner.