I won’t come out and say the words, “now that the snow has completely melted and spring is officially here”, because I have spent more than one May long weekend watching a blizzard through the window of my camper. As Albertans, we all know that looking spring directly in the eye this time of year causes it to notice our presence and subsequently dart away like a deer you’d slow down to spy on a country drive. I will simply say then, that this tends to be the time of year that the possibility of embarking on home renovations becomes more likely therefore it’s a fine time to loosely speak about home alterations for the duration of this week. I hope that statement was non committal enough – I apologize in advance for any freak snow storms I may cause with this article.
Home renos can be big or small – they can consist of a can of paint or a team of contractors. Later in the week, I’ll provide some tips on simple, low cost renos that can have a big impact about how you feel about your living space. But what if you have decided it’s finally time for that dreamy sun-room or that much needed basement development or the re-landscaping of your entire property? Those are often big ticket renos and your personal line of credit may not stretch quite that far. Enter the mortgage refinance. Tapping into the equity in your home to actually add significant value to your property can be a smart move, especially with rates as low as they are today. Many home owners currently have higher mortgage rates from five to seven years ago and would be pleased to find out that their new payments for a larger mortgage may not change all that much due to switching to a new, lower rate.
There are, of course, penalties to be considered for breaking a mortgage but if they are fairly minor, it can sometimes be worth it to pay the penalty now and secure a low rate for the next five years instead of waiting until renewal in a year or two. If the prepayment penalties prove to be hefty, your current lender can usually blend your current rate with today’s rate to come up with a hybrid of the two for the duration of your current term. We know that rates as well as inflation will be on the rise very soon, possibly putting renovating out of reach for some homeowners in the near future. It’s safe to say this spring certainly offers to be the optimal time for best rate mortgage refinancing and affordable renovation supplies.
Worried about increasing your mortgage? That’s smart – paying off your mortgage can be an important part of your long term financial plan. However, using home equity to build more equity is at least the smartest way to use those borrowed dollars – just be sure not to waste them. Too often, homeowners make reno choices that, at best, add no value at all to their home or at worst, actually take away from the value of the property. This often happens when a homeowners add costly upgrades to a home that put the cost of the home over and above the value that the surrounding neighborhood can support. To avoid this, talk to a home appraiser when making your reno plans to find out which upgrades will add value to your home and which won’t to make the most of your refinance dollars.
In the meantime, a great article on HGTV Canada lists the Ten Home Improvement Projects That Add Value:
1. Painting: Payback: As much as 300%
2. Kitchen remodeling: Payback: 68-120%
3. Bathroom addition: Payback: 80-130%
4. Bathroom remodeling: Payback: 65-120%
5. Finishing unfinished space: Payback: 50-90%
6. Window/door replacement: Payback: 50-90%
7. Deck addition/improvement/expansion: Payback: 65-90%
8. Additions of bedrooms, family rooms, sun-rooms, conservatories, garages, etc.: Payback: 50-83%
9. Home office remodeling: Payback:60-73%
10. Energy efficiency retrofits: Payback: Highly variable
Read more of this article here.
Thinking about renovating or remodeling your home? Contact one of our licensed mortgage brokers to have all your refinance questions answered and don’t forget about our handy, secure online application!