Thinking about renovating your home? A mortgage to take equity out of your home might be the right solution.
News Fact |
Now that you have decided to go ahead with your home renovations, what impact will the renovations have on the resale of your home?
Anticipated Returns on Home Improvements
Kitchens and bathrooms are key areas to focus on when renovating. With average paybacks of 72% and 68% respectively, new fixtures, cabinets and tiles could be well worth the money, time and effort.
The following Appraisal Institute of Canada (AIC) Study, highlights the Top Ten Renovations and the Average Rate of Return:
| Interior painting and décor .......................................... | 73% |
| Kitchen renovation ..................................................... | 72% |
| Bathroom renovation ................................................. | 68% |
| Exterior paint ............................................................ | 65% |
| Flooring upgrades ...................................................... | 62% |
| Window/door replacement .......................................... | 57% |
| Main floor family room addition ................................... | 51% |
| Fireplace addition ....................................................... | 50% |
| Basement renovation .................................................. | 49% |
| Furnace/heating system replacement ............................ | 48% |
Here’s how to calculate the rate of return on your renovation:
If you spend $60,000 on a kitchen renovation, you can expect to recover 72% of the cost on resale or $43,200 ($60,000 x 72%).
How do I finance my renovations using my home as equity?
Refinancing your mortgage
If you have built equity in your home and you are planning a major renovation, it may be possible to increase the principal amount of your mortgage.
Let’s say for example:
| You have left to pay on mortgage of $200,000 | $120,000 |
| New kitchen renovation budget | $30,000 |
| You may be able to take cash out by | $150,000 |
| increasing the principal amount of your mortgage to ($120,000 + $30,000) | |
Secured line of credit
If you take out a secured line of credit, your home will be used as collateral so that you will obtain a lower rate than you would with a personal loan or a line of credit. A secured line of credit also offers payment terms that are more flexible than a mortgage.
The qualifying amount for a secured line of credit will depend on the equity in your home and what is left to pay on your first mortgage.
Here’s an example:
| Your home is appraised at | $300,000 |
| Left to pay on existing mortgage | $150,000 |
| Renovation budget | $50,000 |
| Revised total debt ($150,000 + $50,000) | $200,000 |
| Loan to value ($200,000 ÷ $300,000 x 100) | 66.67% |
Your loan to value will impact the amount you can qualify to borrow.
