Home Purchase And Improvement Mortgages
You’ve found the perfect house at a great price, and you might have big home improvement plans for it, but you also need to have a plan on how to pay for it all. Like most people, you probably don’t have money lying around to pay for it yourself. Well, don’t worry! Trusted mortgage broker Boychuk Mortgage Group wants you to know that there is a solution in the form of a home purchase and improvement mortgage.
What is a home purchase and improvement mortgage?
If you didn’t know that you can add renovation costs to your mortgage, you aren’t alone. There are a number of renovation projects for you to consider when improving your home. Likewise, there are also multiple home purchase and improvement mortgage sources that you can choose from to finance your home purchase and renovation. Namely:
- Home equity loans
- Home Equity Line of Credit (HELOC)
- Mortgage refinances
- Personal mortgages
- Credit cards
All these financing options allow you to borrow money to renovate your home. However, each option is different with regards to how much you can borrow, how difficult it can be to borrow, and how much it will cost you to borrow. These home improvement financing options can have different requirements when it comes to credit scores, income, credit limits, and interest rates. This means that the option that works best for you will not only depend on your project size and length but also on your financial situation. You can use one or a combination of these mortgages and financing options to finance your home improvement project.
Types of home purchase and improvement mortgages
1. Home equity loan
A home equity loan is a secured loan for a fixed amount of money that you borrow based on the equity of your home. It is a lot like a normal mortgage, where you borrow a specific amount and then make regular payments during a fixed repayment period. It allows you to borrow a large amount of money at a low-interest rate. However, home equity loans need you to actually have home equity to borrow against. If you don’t have at least 20% home equity, you won’t be able to use this method to finance your home improvement project.
2. Home Equity Line of Credit (HELOC)
Unlike a conventional mortgage, a home equity line of credit is something you establish ahead of time and use when and if you need it. It’s a little like a credit card, except with a HELOC, your home is used as collateral. You can borrow as much or as little as you need at any time up until you reach your credit limit, and you will only pay interest for the amount that you borrow. Just like a home equity loan, you’ll need to have at least 20% home equity to borrow with a HELOC if you have a mortgage, or at least 35% home equity for standalone HELOCs.
3. Mortgage refinance
A mortgage refinance is when a homeowner gets a new mortgage to replace their current mortgage. Most people refinance to lower their interest rates and reduce their mortgage payments, often saving thousands in mortgage interest. When you refinance your mortgage, you may or may not be charged penalties or fees. If you refinance during your term, your mortgage lender will charge mortgage prepayment penalties for breaking your mortgage. However, you can avoid penalties if you choose to refinance at the end of your mortgage term when it is up for renewal.
4. Personal loans
A personal loan for a home renovation fulfills your financial needs to carry out all that is required in terms of repair, maintenance and improvement. Since the money is directly sent to your account, this is best for those who need to pay renovation expenses relatively soon. However, since personal loans are unsecured, they will have a high-interest rate. The rate can also be significantly higher depending on your financial situation, such as if you have a poor credit score or low income.
5. Credit card
Using a credit card to pay for labor or materials to renovate your home can be a financially smart decision, but it all depends on some variables, including the financing rate and how quickly you’ll pay off the balance. If your home improvement project is small, a credit card might be an option for you to finance your project for a short period easily. However, if you cannot pay it back soon enough, then this doesn’t make sense because it makes the process more expensive.
6. Store financing programs
Many home improvement stores in Canada offer store credit cards for customers. These credit cards may provide many perks, such as a longer return period, extended warranties, and special offers and promotions. Store credit cards frequently offer a discount when new cardholders make a purchase with the store. Store cards may also earn continuing rewards and provide perks for purchases made at the store.
Home purchase and improvement mortgages by interest rate
Mortgage refinance: 1.5%+
Home Equity Line of Credit (HELOC): 2.5%+
Home equity loan: 5%+
Personal line of credit: 5%+
Personal loans: 6%+
Car loans: 6%+
Store financing: 8%+
Credit cards: 19.99%+
Is a home purchase and improvement mortgage right for me?
Home purchase and improvement mortgages allow you to get the funds needed to buy the property and the funds you need to make the renovations/repairs on your house. And it’s all rolled up into one mortgage with affordable monthly payments. From paying the architect to procuring raw material for the construction, home purchase improvement mortgages provide the flexibility to cater to multiple remodeling costs. The icing on the cake is that home improvements often add value to your home, which could return at a higher home selling price compared to the cost of the renovations. Having a set budget ahead of time is important to ensure that you don’t spend more than you can afford. Since home purchase and improvement mortgages are based on borrowed finances and not just free money, it may not be a good idea to renovate your home now if you can’t comfortably afford any additional mortgage payments in the first place.
If you need help understanding how you can finance your home purchase and improvement projects, reach out to Boychuk Mortgage Group today! We are a dedicated and accredited mortgage brokerage in Burnaby, British Columbia. Given our expertise in the industry, we inform you about the various types of home purchase and improvement mortgages so that you can make a wise decision based on your unique situation.