When doing a major renovation like adding a floor to an existing home, it’s important to have a flexible plan in place for the financing as well as the renovation, say experts.
Whether you're buying a home or transforming the one you own into the home you're dreaming of, understanding your financing options is crucial to achieving an optimum outcome.
"In order to take advantage of the many options available today, it's important to assess your individual situation as well as your future plans, and to then talk to an advisor," says Todd Lawrence, senior vice president, products and payments, CIBC.
For example, homebuyers purchasing a starter home with the ambition of moving quickly up the real estate ladder may want a mortgage that offers the greatest flexibility to refinance or switch their mortgage. "Unfortunately, some of the so-called 'low-rate' mortgages currently on the market have fairly restrictive features around pre-payments, refinancing and switching," notes Mr. Lawrence.
Many families find their budget stretched to maximum capacity when they first buy a home, but as time passes, a raise at work or declining student loan or daycare expenses can provide opportunities, Mr. Lawrence explains. "A flexible mortgage allows them to increase their payments as their cash flow improves, so they can pay off their principal faster and reduce interest over the life of the mortgage."
The current low-rate interest environment provides many opportunities for homebuyers to pay down their debt faster and pay less interest overall, he says. For homeowners who regularly receive a year-end bonus, or even a regular tax refund, a mortgage that allows lump sum payments can translate into significant savings.
In today's competitive market, there is a wide selection of financing options designed to appeal to people at every stage of home ownership, depending on their individual needs.
Mr. Lawrence points to CIBC's popular "cash back" mortgage as an example. Depending on the term and the amount of the mortgage, homebuyers receive up to three per cent of the loan value in cash.
"It's especially appealing to first-time homeowners, as it can assist with closing and moving costs," he notes. "As well, for those who are planning to upgrade their new home, the cash back offer can help finance renovations, or with furnishings and décor."
CIBC's Home Power Plan is a combined mortgage and secured line of credit tailored to the needs of homebuyers who wish to use the equity in their homes to renovate and increase the home's value.
"With a mortgage and a line of credit bundled into one low-rate product, as you pay down your mortgage, the limit on the credit line expands. The money then becomes available to use whenever and for whatever purpose you wish," explains Mr. Lawrence.
Just as with buying a home, and "as is probably true of most things in life, it's important to have a renovation plan and review it with an advisor to discuss financing and budget," stresses Mr. Lawrence.
A flexible financing option is ideal for larger renovation projects, says Scott McGillivray, star of HGTV's Income Property. Once your budget is compiled, "set aside an extra 25 per cent," he says. "If you're budgeting
a $50,000 renovation, for example, have an extra $12,500 on reserve, ready to go."
Developing detailed renovation plans and contracts can help keep a renovation on budget once the financing is in place, says Mr. McGillivray. He suggests initially contacting about 10 contractors or renovators to request estimates, with the aim of getting three. "This business is crazy, and contractors are very busy – if they are working on a job, they probably aren't providing quotes. If you just contact three people for estimates, it's likely you'll only get one."
Remember than an estimate is exactly that, he adds. "When you do decide which contractor you're using – after checking references, verifying their insurance and getting their contractor licence number – you want to make sure you have a full scope of work signed by both parties, with a detailed breakdown of what is and is not potentially involved in the renovation."
For more information, visit cibc.com/mortgages.