Now that spring’s in the air, many homeowners are thinking about tackling home improvements or full-on renovations from their to-do lists. If you’re planning some renovations this year and you’re looking to free up funds to support your projects, I may have a solution for you.
But, first, it’s important to plan ahead. Setting a budget before deciding how you’re going to pay for your renovations is essential to avoid living outside your financial means and optimize your spend.
While the allure of big box store credit is strong, cost overruns can derail the completion of the plan. Additionally, it’s difficult to keep track of multiple store credit card payments while navigating a renovation as you often can’t find everything you need in one place.
Add in the high interest rate cost on these store credit cards – or any credit card, for that matter – and you’re looking at some unnecessarily high reno costs! For instance, a Home Depot card offers a six-month no-interest payment period. But, once those six months expire, the interest rate is 28.8%. And Rona card interest is 19.9%.
In comparison, rolling the payment into your mortgage would fall around 3.29% using today’s interest rates.
To break it out into dollar terms, a $30,000 renovation would result in an increased mortgage payment of $147 over a 25-year amortization or $131 over a 30-year amortization at 3.29%. The total interest cost in the first year would be $968.56 or $971.38, respectively.
That same $30,000 charged to a store card at 28.8% interest per year is $8,640, and $5,970 at 19.9%.
Additionally, by opting to stay in your home and renovate on a set budget, you’re not only increasing the resale value of your home, but you’re also avoiding the costs associated with selling your home and closing on a new property – which can easily run into the thousands.
Taking advantage of home equity
There are simple, cost-effective mortgage solutions available to homeowners who are planning a renovation.
The most economical time to access equity is when your mortgage is coming up for renewal, but it may also make sense to refinance your current mortgage to free up reno funds. Upon qualification, you can typically borrow up to 80% of the value of your home to renovate.
I’d be happy to advise on your specific situation to see what makes sense for you. Answers to your questions are a call or email away.