Many of us watch those home improvement shows (guilty), and dream of ways how to finance home improvements for our own homes.

If you’ve fallen in love with that gorgeous new granite countertop in your newly renovated kitchen, you should know that it’s not going to make you money when you sell your house.


Until recently, borrowing money for a home improvement meant going to the bank, seeing a loan officer, crossing your fingers and hoping for the best.

Nobody likes doing any of that.

Statistics tell us that in 2018, homeowners spent an average of 7,560 U.S. dollars on home improvement, an increase of over nine hundred U.S. dollars on 2017

Today, there are lots of ways to finance those home improvements.

A mortgage broker can offer more than 200 different loan programs to finance your upcoming home improvement project.

Mortgage brokers are just one type of lender who is able to put together a loan that fits your personal situation.

You should also know that expensive home improvements don’t always pay off when it comes to selling your home. 

Those incredible before-and-after images in the magazines? They’re just great entertainment.

For something with more value, bypass the bells and whistles and stick to the basics, like furnaces, windows and basement rental units.

These things actually add value to the home.

Home improvements, in general, shouldn’t be seen as investments, because that’s not always the case.

Home improvements are only going to make you money if the potential buyer falls in love with it. If they absolutely adore the beautiful kitchen you installed 6 months ago, you’re in great shape!  

Too much longer than that, and wear and tear starts to set in, dulling the shine of your hard work.

Styles and popular color palettes can change, and property values can decrease.

You’re also paying interest charges on the money that you borrowed to finance the project.

Debt and Home Improvements

Taking on debt to finance a home renovation isn’t always a smart move regardless.

We’re currently in a low-interest environment that won’t last forever.

If you’re taking on debt to finance a home improvement, you should keep in mind that rates can and will turn at some point in the not too distant future.

It’s a good idea to keep some repayment flexibility if at all possible, so that the debt can be repaid early, like through an open mortgage or line of credit.

If the term to repay the money you borrow is going to be longer, you should consider a fixed-rate mortgage, many of which still allow an annual prepayment.


Think about various financing options before using your own funds to finance a home renovation.


Using Your Existing Mortgage

One place to look for home renovation financing is in your existing mortgage.

Two things can happen to a mortgage when you sell your home, first, it can be taken with you, or “ported” to a new property, which doesn’t incur any extra costs.

Or the mortgage can be broken, which will incur penalties.

If you have a mortgage that you can “port” when you sell your home, it’s a good option to finance a home improvement.

Increasing Your Mortgage

In this case increasing your mortgage to finance the reno should give you the lowest possible financing cost, at around 2.4 per cent for a variable rate or 2.8 per cent for a five-year fixed rate.

If your mortgage is one that needs to be broken, you could find yourself in a risky situation. The key is whether the original and new mortgages are variable-rate ones.

Variable-rate mortgages have a three-month penalty. Considering their low-interest cost, this outweighs the penalty amount.

If the mortgage is a fixed-rate one, the increased mortgage amount will have a larger penalty that is generally impossible to calculate in advance.

Home Equity Line of Credit (HELOC)

The next best option is to request a home equity line of credit (HELOC) to fund your home renovation, and that will cost about 3.5 per cent to 4 per cent. This type of loan won’t attract a penalty when it’s time to payout.

Personal Line of Credit

An unsecured personal line of credit, is another option, but these come with higher interest rates.

Using favorable interest rates from credit card companies could be also an option, and that could  lower your interest rate.

But how do you know if renovating a home makes sense financially?

When Does a Home Renovation Make Sense?

The answer to that question often depends on the situation.

I’ve always thought that a home renovation should be for your own living comfort.

A family can outgrow its current space and consider a home improvement, instead of buying a more expensive home.

Adding living space in underused areas, like basements and garages can add home improvement value.

Updated kitchens and bathrooms are still key improvements that help a home sell more quickly.

On a much smaller scale, hardwood flooring, stainless steel appliances and ceramic sinks with multifunction faucets are still popular.

A fresh coat of paint, and decluttering the space can add value to the sale of a house.


Read: Cutting expenses is a great way to save money for a home improvement project.


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