How to Pay for your Home Renovation
Improvements can be pricey, but don’t allow being unsure of how to pay for it keep you from renovating. Here are a few ideas to cover the costs of updating your home:
Savings: Many people dip into their savings accounts to pay for their home renovations, particularly if they’re undergoing a minor update. If you don’t want to go into debt renovating your home, set a date you’d like to start your renovation and save whatever you can until then, including any windfalls.
Retirement savings: Tapping into your Registered Retirement Savings Plan (RRSP) may be an option for some homeowners. However, if you do withdraw money, you may have to pay taxes on it at a tax rate that ranges from 10 to 30 percent, depending on how much you withdraw and where you live. Also, remember you can’t recontribute the money, which reduces the value of your RRSP in retirement.
Home equity line of credit (HELOC): If you have equity in your home, a home equity line of credit allows you to borrow a portion of the total equity amount. Instead of making payments on the entire amount, you’ll make payments on the amount you’ve borrowed, similar to a credit card. A line of credit is ideal when you’re not sure what the total cost of the project is, or if you anticipate that your borrowing needs may vary.
Home equity loan: These loans allow you to borrow against the value of your home. A home equity loan is different from a HELOC in that you borrow one lump sum and the payment is amortized over the terms of the loan, if you qualify. However, there are risks involved, such as the possibility of losing your home if you can’t make your payments and if you have to refinance, you’re limited to a five to seven year term.
Personal loan: If you know how much your renovation will cost, a personal loan will give you a lump sum of money to use, which you’ll repay over an agreed-upon period of time.
Credit cards: If the project is small-scale or DIY, you may consider using your credit cards to pay for it. This method gives you an added benefit of accumulating points and rewards quickly. Additionally, your credit score may get a boost when the amount is paid back in a timely and responsible way.