Once you have decided to renovate your home, one of the most important steps is to determine how you will pay for it. Will you use cash from savings, redeem other assets or borrow money? In the early planning stages, it may be difficult to know how much your proposed renovation will cost. However, a professional renovator can give you a ballpark figure that will help you to determine your financing needs.

How much can I afford to spend on my renovations?
There are two factors involved: savings that you have set aside for renovations, and the amount of credit, loan or mortgage add-on for which you qualify. Consult with your lender to determine the amount that you can comfortably spend on renovating your home. 

Lenders also suggest that you set aside a certain percentage of your renovation funds to cover items not included in your contract with the renovator or unforeseen costs. Once the work is underway, homeowners often discover they would like to add things -- extra features, new appliances, furniture, window coverings and so on. With a separate fund, you can make those decisions easily, without having to renegotiate with your lender (if you are financing your renovation).

I want to borrow money for my renovation.  What are my options?
One of the most popular financing options for smaller renovations is a personal line of credit, or if you are planning a larger, more extensive renovation, you may choose a homeowner line of credit, which allows you to borrow against the equity in your home. If you prefer an installment loan with a fixed term instead, a personal loan or a home equity loan may be a better alternative. Or, it could be advantageous to take out a new homeowner mortgage or refinance your existing mortgage, particularly for a large renovation where you want to spread the cost over the lifetime of a mortgage.

I don’t need to borrow all of the money at the same time.  What’s the best option for me?
A line of credit is ideal for financing ongoing or long-term renovations. Once your credit limit is approved, you can borrow up to that limit at any time, and you pay interest only on the money you actually use. You access your line of credit with a cheque, a credit card, or through an automated banking machine (ABM). You will receive an itemized monthly statement that will allow you to keep track of all your renovation expenses.

How do I repay a line of credit?
Typically you must make a minimum monthly payment, consisting of a percentage of the outstanding balance or a minimum dollar amount. You can pay the outstanding balance in part or in full, at any time.

When is the best time to think about financing?
Visit your lender early in the planning stages to find out how much you can borrow and what are your options. Consult with a lender even if you plan to pay cash from savings or the sale of assets, such as guaranteed investment certificates. Your lender can help you to determine if this is the wisest course of action, or if you would do better with a line of credit or a personal loan.

How do I apply for a renovation loan?
Most lenders offer several ways to apply -- by telephone, fax, mail, the Internet or in person. Regardless of the method, you will have to visit your lender to discuss the financing arrangements, such as loan features, terms and conditions, and to sign the loan documents.

Can I get pre-approval for my renovation loan?
Yes, lenders strongly recommend that you get pre-approval for your renovation loan. That way, you know what you can afford before you enter into detailed discussions with a renovator. There is no cost for pre-approval, and it does not oblige you to go ahead with your project or loan. You can usually get pre-approval for a loan up to three months before actually needing the funds.

What information does my lender require from me?
The lender will typically need an overview of your financial situation -- employment status and income, as well as assets and liabilities. For a mortgage, or for a line of credit or loan secured by your property, you may need to provide documentation of ownership, a description of the proposed renovation work and a pre- and post-renovation property appraisal -- information that allows your lender to assess the current and future value of your home, and establish the upper limits of a potential loan using your home as security.

How much does it cost to get a renovation financing loan?
There is no cost for a small loan or line of credit. However, if you plan to borrow a sizable amount and use your home as security, or if you intend to increase your current mortgage, you will incur costs related to property evaluation and legal assistance in drawing up a new mortgage agreement.

How can I save on interest costs?
Many financial institutions offer a lower interest rate on secured loans using your home or other assets as security. Financing your renovation with a line of credit may also carry a lower interest rate than a fixed installment loan. Discuss your options in detail with your lender.

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