Interest rates today are still low in relative terms. The cost to borrow funds remains quite aggressive and mirrors the post-war interest rates from the 1940s and ‘50s, which makes now a good time to renovate and upgrade your family home. Below are some key considerations to fund your next project.
Mortgage, HELOC or private money
A traditional mortgage can be stable if fixed, or subject to change by way of variable and trigger rates. It is typically the least costly way to fund a project. Second or third mortgages are possible, but are costlier and riskier. If you are building new or substantially adding to or renovating your existing home, a construction line is often required. If you are over 55, reverse home mortgages can also help free up equity for upgrades or repairs in a pay-later type structure that is dealt with when the home is sold.
A home equity line of credit (HELOC) allows for up to an 80 per cent loan-to-value (LTV), and is tied to an existing mortgage. If sizeable or not pre-emptively set up, it can require similar underwriting to a mortgage. It can also be more expensive at 50 basis points above the prime (variable) rate (on average). Today, that would be 4.7 per cent + 0.5 per cent for a total of 5.2 per cent and subject to change should the Bank of Canada raise rates further, as it is expected to do through the end of the year. A HELOC is best used for renovations of $300,000 or less.
Alternative options can include “B” lenders or private equity. These can be easier to obtain, but are more costly, with arrangement fees and interest rates that can be double what the big banks offer. You can also go to family or friends, but those avenues can be tricky. Mixing financials with people close to you can sometimes negatively impact those relationships.
A booming trend in Canada is a living inheritance, where parents or grandparents gift funds to be used and enjoyed now while they are alive. This allows them to experience the benefit of their gift. However, there are tax and estate considerations with this strategy that should be confirmed with a professional prior to undertaking.
Depending on your circumstances and the work you plan to do, there are a number of refunds and rebates available if you are building or renovating your home.
GST rebates for new homes or substantial renovations (90 per cent), provide up to $24,000 in refunds.
Natural Resources Canada, as part of the Canada Greener Homes Initiative, provides grants up to $5,000 for insulating, air sealing, replacing windows and doors, thermostats and space and water heating equipment, as well as renewable energy and resiliency systems to make your home more environmentally sustainable and protect it from environmental damages. It further provides up to $600 toward the total costs of your pre- and post-retrofit EnerGuide evaluations to help guide what changes to make, and interest-free loans of up to $40,000, with a repayment term of 10 years to help you undertake major home retrofits.
In many instances, federal, provincial and municipal rebates are can be stacked, so be sure to search for them to ensure you comply to stack that cash!
The more time you have to plan and shop for materials and labour, the more you can save on your project. If you’re in an immediate rush, your options will be limited to whatever and whomever is available in that moment. The cheapest prices won’t always yield the best value, and the best products and most skilled people who are in highest demand often come with wait time. If you can, seek out and commit to the best value, instead of taking what you get by leaving things to the last minute.
The last word
When planning your design and build project, be sure to start your search at RenoMark.ca, the home of the professional, to ensure your project is taken care of by a contractor that abides by a strict code of ethics and conduct, including licensing, insurance and written contracts to protect you and your investment.