Are you in dire need of a renovation but don’t have the funds to start? You can use your home to pay off your renovation projects and have the house of your dreams. Here’s how!
What is a Home Equity Line of Credit (HELOC)?
A HELOC is a Line of Credit "LOC" secured against your home. This product allows you to borrow at the cheapest interest rate possible. The bank will let you borrow 80% Loan to Value (LTV).
For Example: If your home is worth $1,000,000, you are eligible to borrow up to $800,000 ($1,000,000 x 80%).
How does it work?
A HELOC, is the most flexible product on the market for borrowing. It gives you the option to either consolidate your renovation debt along with your mortgage or to keep your debts separated should you want to keep them apart for accounting purposes.
There are two options available upon borrowing from a HELOC:
Locked In
You are entitled to choose either a fixed or variable interest rate for the amount you borrow.
PRO: The interest rates are currently as low as mortgage rates offered by the banks.
CONS: The monthly payments, you cannot pay off the full balance and it is scheduled payments just like a mortgage. However, you can double up on the mortgage payment by 100% + pay an additional 15% of the original principal amount as a lump sum.
Revolving
You are entitled to leave it in an open revolving state where you are responsible for paying the debt down at your convenience.
PRO: You can pay off the full balance at any time with no restriction.
CON: The bank will charge you interest only! You are responsible for paying any principal amount you may want, which can take longer to do if you are not on a strict payment plan.
CON: The interest rate on revolving HELOC is usually higher than what the locked mortgage rates offer. The revolving interest rate can hover around 3.65%-4.45% (rates subject to change contingent on Bank of Canada Prime).
How can you use your HELOC to pay off a renovation?
A renovation cost can be added into your mortgage balance or kept separate—this is contingent to:
If your mortgage is up for renewal
If you like to have two separate payments (1. Mortgage & 2. Renovations)
Renovations can be added to your mortgage, and the balance can be re-amortized over 25 years, giving you, the client, more time to pay off your renovation rather than paying the costs upfront.
At Speculo Construction, we work with various lenders as well as industry-leading professionals to get the job done. Their knowledge and expertise help educate residential owners with the problem and help find a creative and unique solution. At Speculo, we believe that transparency is vital to the best renovation experience.
By Speculo Construction Inc. Featuring Pawan Steve Kapoor | Manager, Mobile Mortgage Specialist | TD Canada Trust
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