• Gene Vihodsef

Home improvement: What you need to know if you’re thinking about getting a home renovation loan

Updated: May 24

Thinking of renovating your home? Here's what you need to know about renovation loans, HELOCs and borrowing to renovate.

There are all sorts of compelling reasons to renovate your home. Perhaps you’re making room for a new addition to your family or seeing someone off to college. Kitchens and bathrooms especially appreciate regular updates. Or maybe you’re just protecting your investment. Whatever your reason for considering a renovation, you’ll have to work with a budget to get the job done. For most, this means looking into a home renovation loan. If you have questions about how to take out a loan for your home renovations—or even if you should—you’ve come to the right place.

What is a home renovation loan?

As the name suggests, a home renovation loan is money borrowed to do home renovations. It’s a personal loan, and at most lenders, iCapital included, it’s secured against the equity you have in your home. Another term for this is a home equity loan.

Home equity loan vs mortgage refinancing vs a HELOC

Some borrowers find money for renovations by refinancing their mortgage. This method also uses the equity in your home as collateral but in the case of refinancing, the idea is to pay off your mortgage and take out a new mortgage—ideally at a lower rate. This option isn’t well-suited to those who intend to sell in the shorter term.

Like mortgage refinancing, home equity loans give you access to a lump sum of money, and they use your home as collateral so they tend to offer a lower interest rate than unsecured personal loans.

A third borrowing option is a home equity line of credit (HELOC). Imagine a HELOC like a credit card with your equity representing your limit where you can borrow small amounts as you need them. HELOCs are offered by all of the major banks and are typically based on a variable interest rate.

Ultimately, the product you choose will depend on your circumstances but all of these loans can be used towards a home renovation.

Is now really a good time for renovations?

The COVID-19 pandemic has thrown a lot into question for a lot of Canadians. Some have had their hours reduced or lost jobs altogether. Others have seen their investments tank. If you’re struggling with the idea of borrowing money for a home renovation you’re not alone. It’s wise to go into a borrowing agreement informed and now is a time of great uncertainty. That said, there are valuable opportunities for those in the position to seize them.

Individual Canadians are not the only ones living with financial uncertainty, and that means lenders are offering notably low rates. A personal loan for homeowners at iCapital can be financed for as low at 9.99%.

Other factors to consider are that you and your family might have more time to dedicate to a renovation and even be able to funnel some funds earmarked for something else (like travel for example) into the project. No matter what else is going on, it’s always a good idea to protect your investment by keeping your home in good shape so now might be an ideal time to take care of maintenance and updates.

Is a home renovation a good investment?

Your home is likely one of your biggest investments so it makes sense to care for it. That said, some renovations promise a higher potential return than others. If you’re thinking about your renovation as an investment on your resale value, skip the accessories and think about the basics. A new roof or furnace will go further than countertops or interior paint—particularly if you don’t intend to move for a while during which time styles may change. That said, deep renovations on kitchens and bathrooms that include up-to-date appliances can provide the “wow” factor to command a higher asking price.

What you need to know before applying

Before you apply for a home improvement loan you should have been able to prove your financial solvency and ability to pay back the loan. Generally, you’ll need to show a regular income, a bank account, and a permanent address. A good credit score is important as it shows lenders that you have a record of repaying your loans. Also, a better credit score will sometimes get you access to a lower interest rate.

In addition to the loan amount, you will also need to negotiate the amortization period—that is, the amount of time you have to repay the loan—and the terms. At iCapital, the amortization periods can range between 9-60 months, and repayment is done through a regular, scheduled automatic debit from your account.

Whether you’re considering renovations as an investment or to simply increase your own enjoyment of your space, there are compelling reasons to make the leap now. Favourable interest rates and a bit of free time don’t generally come along simultaneously. With the right preparation and plan, you can go after a home renovation loan with confidence.

Disclaimer: When it comes to financing home renovations, many homeowners turn to alternative financing providers - iCapital is one of such reputable finance companies in Canada.

If you have any questions, please feel free to contact me.


Gene Vihodsef

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