Is your home less than it could be? After living a few years in a home, many homeowners find they want to make some changes. Whether they want to convert the bedrooms vacated by their kids into a luxurious ensuite bathroom, or make room for a home office, or open up their kitchen and dining area, they all have something in common – the challenge of paying for these modifications.
The Cost to Value Ratio for Home Renovations
For most homeowners, the chance to complete a long desired project far outweighs any concerns over the return on their renovation investment. But when planning a home reno, knowing the possible value of your remodeling may help you focus and prioritize. Why spend money on skylights or a new fence when the best returns lie elsewhere?
Generally speaking, the kitchen and bathrooms are the places to start. In polls taken across North America, upgrades to these rooms have been proven to earn back 75 100 of their costs when the house is sold.
Other winning renovations include interior painting, a new roof, and a new furnace. Low on the list? The aforementioned skylights and a lot of exterior fixes, like landscaping, pools, and asphalt or brick driveways.
Paying For Your Reno
For large projects, you really have two options – maxing out your credit cards or line of credit, or taking out a second mortgage.
While the credit route is popular, it can also be costly. Interest rates on these loans can be very high. On the other hand, and contrary to popular belief, it is possible to find affordable second mortgages to finance your renovations.
With a second mortgage, or home equity loan, you can borrow against the equity you have built in your home. Most lenders will even allow you to borrow more than that amount, even up to 85 or 90 of the home’s value. With lower interest rates than credit cards, second mortgages generally end up costing less.
The thought of the additional debt level of a second mortgage can worry some people. It may help to see it as an investment in your home. Remember that the money you put into your renovations will pay back handsomely when you sell your home.
Affordable second mortgages also have other potential uses, including freeing up money to pay off other debts. While that concept may seem paradoxical – borrowing money to pay back other borrowed money – it has helped a lot of people regain a firm financial footing. The premise is fairly straightforward – borrow against your home equity to obtain money at a lower rate and then pay off your outstanding debts. You are then left with a lower cost loan, which will save you a significant amount in interest over the long term.
Whether for home renovations or other expenses, borrowing against your home equity can be a wise financial strategy. A qualified mortgage professional can help you decide whether this option will work for you.
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