Our hot housing market in Brampton, Toronto and the GTA has greatly increased home values, and with mortgage rates hovering around historic lows, homeowners with enough equity are seizing the opportunity to tap into that equity to create the perfect home that fits their lifestyle and to further boost long-term value.
Many also choose to renovate because moving is a lot of work and it’s expensive when you factor in all the costs – legal fees, land transfer tax, moving costs, real estate commission, decorating, furnishings, and so much more. Sometimes it just makes more sense to love your home instead of listing it.
If you’re thinking of renovating your Brampton, Toronto or GTA home, you’ll want to carefully look at how to finance that transformation. It makes sense to look at your equity because it’s your opportunity to finance your project with your lowest-cost funds. Keep in mind that legal and appraisal fees may apply.
You can access your home equity through a mortgage refinance, a program called refinance plus improvements, home equity line of credit (HELOC), and a second mortgage.
Here are the benefits and considerations of each.
- Refinancing your current mortgage – this involves replacing your current mortgage with a new one that has the additional funds you need. You can borrow up to 80% of your home’s appraised value and you can use your prepayment privileges if you want to pay the renovations off faster. If you are breaking your current mortgage and not doing this at renewal, you will likely have penalties to pay for breaking your mortgage.
- Refinance Plus Improvements – if you are already close to the 80% max loan to value, this may be the option for you because you can refinance up to 80% of the new post-renovation value of your home. Generally, you can add 10% of your home’s value to your mortgage, up to the lender’s maximum.
- Home Equity Line of Credit (HELOC) – gives your long-term financial flexibility. While you can borrow up to 65% of your home’s value, your mortgage plus HELOC cannot be more than 80% of your home’s value. You gain flexibility because it can be paid off at any time with no penalty and you can reuse the funds available. Rates are slightly higher than the refinance route and you are only required to pay the monthly interest.
- Second Mortgage – allows you to borrow money without breaking your current mortgage. While it’s more expensive and less flexible than a HELOC, there are structured payments to ensure it gets paid down and we may be able to go over 80% loan to value.
How do you know how much equity you have? Here’s an example. If your home is valued at $1,000,000 and your mortgage is $400,000, then your equity is $600,000. But Canadian mortgage regulations state that you can only borrow 80% of your home’s value, which would be $800,000. When you subtract the mortgage of $400,000, then you have $400,000 in equity available to refinance.
If the home of your dreams is one renovation away, let’s discuss which option is best for your situation. I’m here to help homeowners in Brampton, Toronto and the GTA maximize their bottom line and personal home enjoyment. Contact me to find out more.
