5 years ago, this home was perfect. But now that your family has grown, and time has passed, its in need of some renovations. Here is how to pay for those renovations.

You purchased your first home 5 years ago. At that time, this home met all your needs. But now that you’ve gotten to know what home ownership entails, seen the ins and outs of your home, and seen your family grow, suddenly you are in need of extra bedrooms, a play area for the kids, and an upgrade to your kitchen. Kitchen renovations can easily add up to $30,000, and a new basement could run $40,000 in a heartbeat, but most of us don’t have $70,000 available today to spend on home improvements. So what do you do?

You have 3 options:

1. Sell your home, and buy a new one that meets your family’s current needs

The benefit here is that the cost of upgrading is at least partially financed by way of the new mortgage you will take out on the new home. Your current home cost $400,000, and the newer, larger home you purchase costs $500,000. You’ll get a new mortgage for $475,000, meaning that you could in some way look at the move as having financed $75,000 worth of renovations. In addition, you won’t have to endure the renovation process. But there is a downside. Changing homes could mean moving your children away from their friends, changing schools, lengthening your daily commute to work, and even losing convenient access to some of your favorite neighborhood attractions.

2. Save up your money slowly, and renovate in bits and pieces as your budget allows

This is what most people find themselves doing. Over time, we save up, and pay for upgrades to our homes in bits and pieces. Maybe first you paint the house, then change your kitchen cabinets, one day replace your bathroom fixtures, etc. This option takes time, and can often lead to a situation where your home develops a disjointed feel caused by changes in trends, varying sales over time, and even just changes to personal style. In addition to the time, and potential for disjointedness, this option can often cost dramatically more than completing all your renovations at once. Just like any other product or service, renovation costs also experience the benefits of economies of scale.

As a homeowner looking to go this route, a debt consolidation refinance could be the key to expediting the saving up process, and allow for you to renovate your home sooner, and thoroughly. Debt consolidation mortgages provide homeowners with the ability to pay for their renovations themselves, over a shorter period of time than trying to save up while paying for auto loans, credit cards and line of credit.

3. Take advantage of CMHC’s Refinance + Improvements Program, and finance upto 80% of the renovation cost(s) today

CMHC’s Refinance + Improvements Program allows for homeowners to financing up to 80% of their home renovation cost(s) on top of the value of their home. This option allows for homeowners to come up with a unified vision, and design for their homes, and complete all their renovations in a single shot. Homeowners simply have to provide an estimate from the contractor who will be completing the renovations, and accordingly have their mortgage approved. Once the renovations outlined in the estimate are completed, the homeowner receives the funds necessary to pay for the renovations.

This product is a tremendous tool for homeowners, because they don’t pay a higher interest rate (this product is offered with the best available rates on the market), can pay for renovations by way of a small increase to their monthly mortgage payments, and most importantly, this product allows for homeowners to complete all of their home renovations in a single shot, instead of making home improvements in piecemeal.

In Conclusion

All three options are valid. Each has its own set of pros, and cons. Before making any decision, homeowners should take some time to review their own personal situation, and evaluate all of their options. No one solution will be best for everyone. Meet with a mortgage broker, talk to your family and friends about their experience(s) with renovating vs moving, and then, move forward with a plan of action that will best suit your family, and financial situation.

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About the author

Anuj Gupta, BComm

Anuj was born and raised in Edmonton, and has been a broker at Alberta Mortgage since 2005. With a Bachelors of Commerce degree from the University of Alberta, Anuj has been helping Albertans become first time homeowners, and helped Alberta Homeowners save money on their mortgages for over a decade.