Guest Blogger: HAVAN Member Alisa Aragon, Bridgestone Financing Pros
Home renovation shows are one of our favorite TV programs to watch. They are entertaining and showcase the latest design trends, but they also tend to lead viewers to believe home renovations are easy and quick.
It is important for homeowners to understand the realities when planning a home renovation.
1. The budget: Plan for all the costs
On television, the designer may have an $80,000 budget to renovate an entire main floor including the kitchen and finish the downstairs basement. The question is – are the numbers realistic? Do they include design fees, building permits, labour and material costs etc.
In order to have a realistic budget for your renovation, it is critical to work with a professional renovator to get a complete picture and reduce surprises. Do your research before you commit to a project or builder. A great source for proven renovators/ builders is an association such as Homebuilder Association Vancouver (www.havan.ca). Generally, if the price is too good to be true, it probably is, so don’t automatically go for the lowest price.
2. Timeline: Plan a realistic work schedule with your renovator
Reality shows complete renovations within a few short weeks. The homeowners come in and are mesmerized by the transformation. The reality however is that sometimes it can take up to eight weeks just for the kitchen cabinets to get built. Before you start your renovation, prepare a timeline with your renovator so you know what to expect. As they say, time is money, and you will want to know in advance the costs for each stage of the renovation and associated timelines.
3. Financing: Plan your financial strategy with a mortgage expert
Most home renovation shows do not talk about the financing aspect of the renovation. Before you commit to a renovation project, it is recommended to meet with a Mortgage Expert to help you assess your financial situation.
Every person’s financial needs and options are unique. Here are some options for consideration.
LINE OF CREDIT: While you are required to make payments on the interest only, many people are under the impression that they can manage paying the interest and go ahead with the renovations. The danger with using this type of financing is that eventually the principal must be paid and in the meantime, you end up paying huge interest costs.
HELOC: A “home equity line of credit” or HELOC typically will give you a lower interest rate than a line of credit, however you will need to have at least 35% of equity in your home to qualify (based on the current mortgage rules by the Bank Act). Currently, you can refinance up to 80% of the value of your home for a mortgage based on the appraised value.
REFINANCE YOUR MORTGAGE: With today’s low interest rates, you will end up paying a higher interest rate on a line of credit or HELOC, compared to a lower interest rate on a closed mortgage. You pay the principal and interest on a closed mortgage which potentially can save you thousands of dollars in interest compared to a line of credit or HELOC where you can pay interest only for the short term.
If you are unable to pay off the debt quickly, you might be better off to refinance your current mortgage. It might be more beneficial to get a one to five year locked mortgage below 3 per cent. You will be saving interest up front and can take advantage of the lender’s pre-payment privileges. If you currently have a fixed rate mortgage, find out what would be your penalty for paying it out early, it might still be worth it to refinance.
A professional renovator will work with you to create a detailed budget and timeline for your project so you know what to expect. As a Financing Expert, I will review your options and provide solutions to help you realize your dream renovation. Check out www.havan.ca for all your building, renovation and home buying resources.