Consider your reasons for renovating. Have you outgrown your home? Does a renovation make more sense than buying a larger home? Perhaps you are preparing your home for sale. If it’s the latter, make sure you’re spending your money in the right places. A renovation can fast track the growth of your home’s market value. Bathrooms, kitchens, floors and basement apartments are the key areas to increase property value. Make sure you’re not over spending for the type of buyers in your neighbourhood.
Once you’ve determined a renovation is necessary, you’ll begin the process of planning what needs to be done and who will do the work. Doing the work yourself will save you some money but be realistic about your abilities. Work done incorrectly could cost you more in the long run. Hire someone to do the more complex jobs like electrical, plumbing or tiling. It’s important to find a contractor you trust. Always follow up on references and seek out at least three quotes from different contractors.
When you have your quotes, you can finalize your budget and determine how you’ll pay for the renovation. There are a number of ways to go about this. If you can hold off for a while, you can save the funds that are needed. Another option is to hold off on other large expenses such as vacations and costly hobbies. For some people, a secured line of credit or home equity line of credit (HELOC), makes the most sense. A HELOC allows you to borrow money and use the equity of your home to guarantee it*. This is called revolving credit, which means you can borrow money, pay it back, and borrow it again, up to a certain limit. It is recommended that you borrow no more than 20% of the value of your home**. You should always consult your financial advisor as borrowing money is not for everyone.
When considering a large expense, an advisor can offer guidance for the best way to structure the necessary funds required to achieve the lowest possible borrowing costs. Your advisor will review your loan in conjunction with your existing debt and your overall retirement and investment plan to help ensure you’re still on track to reach your financial goals. This will help you come out on top with your home renovation project.
*Leveraging magnifies gains or losses. It is important that you understand a leveraged purchase may involve a greater risk than a purchase using cash resources only.
**Manulife Solutions: Moving forward without moving out