Going haute at home: Financing your home reno

Thumb through the latest issue of Vogue or Fashion and you can’t help but think that the pages ooze with dress porn. Even a pair of overalls can look sexy when styled just so. And now it looks like architecture has gone the same sexy way. Not convinced? Scan the pages of Architectural Digest and be prepared to drool. When it comes to your own home, of course, couture comes at a cost. That’s why your first step in going haute is figuring out what you can afford. You’ll be pleasantly surprised that it may be more than you originally thought.

Couture comes at a cost. That’s why your first step in going haute is figuring out what you can afford.

If you’re a regular viewer of home design and décor shows, the big reveal is always something so completely glamorous that you can’t wrap your head around how it was done in a weekend and on such a tight budget. The answer is the magic of television and the seemingly bottomless pockets of production companies. If you factor in all the consulting fees, design services and labour costs, those tiny budgets balloon to a hefty amount.

And if you’re looking to renovate your own home, you’re probably dreaming of something that your very-real savings won’t cover. If that’s the case, fear not, now is the time to explore your financing options.

Use a home equity line of credit

A line of credit gives you access to a predetermined amount of credit on demand. Generally, you can borrow up to 75% of the appraised value of your home — up to 90%, if the line of credit is insured.

There are some real pluses to going with this option, including:

• It’s easy and convenient. You may have the option of writing cheques or using a credit card or bank card.
• You can take what you need, when you need it, and pay interest only on the outstanding amount.
• A line of credit secured against the value of your house will typically be issued at a lower rate than an unsecured loan or personal line of credit.
• Repayment is flexible — you can pay some or all of the outstanding balance at any time without penalty, or make interest-only payments.

Increase your existing mortgage

You also have the option of increasing the amount of your mortgage to help finance your renovation. This option is ideal if:

• Your mortgage is coming due;
• You’re selling one house to buy another;
• You’re taking out your first mortgage; or
• You’re locked in to a long-term mortgage at a significantly higher rate than is currently available. In this case, the savings in interest could offset any penalty you may incur over the long term.

This option isn’t as flexible as a line of credit, but it does offer some advantages:

• The borrowed funds are structured to be paid back in a set amount of time.
• Interest rates can be fixed, if you choose — unlike a line of credit, which floats against prime.

Get a second mortgage

A second mortgage is just that — a mortgage that is in addition to your first mortgage. Like a first mortgage, a second mortgage is a loan with a specified rate of interest and repayment schedule.

A second mortgage can be a good choice if you are locked in to a longer-term mortgage, but wouldn’t benefit from breaking your first mortgage. Do note, however, that lending rates for a second mortgage are generally higher than those for a first mortgage.

Like increasing your mortgage, this option trades repayment flexibility for the peace of mind of knowing the debt will be paid down if you stick to the repayment schedule.

Get a professional to build on your options

Like many of us, you probably suffer from the I-know-exactly-what-I-want-but-not-how-to-pay-for-it syndrome. This, by the way, is a common affliction. And not just for those of us who live on a budget. (Hey, even Donald Trump has had his money worries — and all because of real estate, no less!)

Here’s where a financial professional can help. You’ll get the right advice about which option will work best for your situation. That way, you’ll feel as confident about your choice as you do the crushed velvet art deco-inspired wallpaper in your new bathroom. (Sorry, we just don’t get it. But we’re sure it will grow on us.)

 

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