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There are many different reasons to renovate a home:  to save energy (and save on utility bills) to make room for a growing family, to improve safety or to increase the resale value of your home, or simply to bring a fresh new look to your home.  There are also a number of different ways to finance your renovation.  Read on to obtain information for a number of financing options, along with practical advice to consider before starting your renovation project.

 

Whether you intend to finance your renovation yourself or borrow money, you should talk to a financial advisor and to your lender before you make firm plans.  They can help you understand your options, and advise you on how much you can borrow and even pre-approve you for a loan. this information will help you plan realistically. 


Explore Your Options 
                    

Your Own Resources:  For smaller renovation projects, you may consider self-funding material costs, especially if you plan to do the work yourself.

 

Credit card:  Likewise, you can use your credit card to pay for materials for smaller renovations.  But be careful not to carry the balance for too long; credit card interest rates can exceed 18%. 


Personal loan
:  With a personal loan, you pay regular payments of principle and interest for a set period, typically one to five years.  You also have the option of a fixed or variable interest rate for the term of the loan.  The interest rate on a personal loan is typically less than that of a credit card.  Unlike a line of credit, once you pay off your loan you will have to reapply to borrow any new funds needed.


Personal line of credit:  This is another popular choice for financing renovations.  It is ideal for ongoing or long-term renovations since it lets you access your funds at any time and provides a monthly statement to help track expenses.  A line of credit offers lower interest rates than credit cards, and charges interest only on funds used each month.  And, as you pay off your balance, you can access remaining funds, up to the line of credits limit, without reapplying.

 

Secured lines of credit and home equity loans:  These options offer all the advantages of regular lines of credit or loans, but are secured by your home's equity.  They can be very economical, since they offer preferred interest rates, however initial set-up costs including legal and appraisal fees usually apply.  Lines of credit and home equity loans are usually limited to 65% of your homes value; however, some regional lenders still allow up to 80% financing for HELOCS.

Mortgage refinancing:  When funding major renovations refinancing your mortgage lets you spread repayment over a long period at mortgage interest rates, which are usually much lower than credit card or personal loan rates.  This type of financing can allow you to borrow up to 80% of your home's appraised value (less any outstanding mortgage balance).  Initial set-up costs including legal and appraisal fees may apply.

Financing improvements upon-purchase:  If you're planning major improvements for a home you're about to purchase, it may be advantageous to finance the renovations at the time of purchase by adding their estimated costs to your mortgage.  CMHC Mortgage Loan Insurance can help you obtain financing for both the purchase of your home and the renovations -  up to 95% of the value after renovations - with a minimum down payment of 5%.



Other Considerations and Options


Planning for the Unforeseen

It's a good idea to set aside a percentage of your renovation funds to cover items not included in your renovation contract.  For things you discover you'd like to add once work us under way, like extra or upgraded features, furniture, appliances and window coverings or for contingency.  A separate fund lets you make decisions easily, without having to renegotiate your financial arrangements or reapply for new funds.

 

Grants and Rebates for Energy-Saving Renovations

Across Canada, renovation grants and rebates are available from the federal and provincial governments and local utilities, especially for energy saving renovations.  If you qualify, they may help pay for some of your projects costs.


Source: CMHC

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Madhavi Acharya-Tom Yew
Business Reporter 


The Bank of Canada is unlikely to change interest rates in 2013, particularly with inflation so low, according to Scotiabank’s head economist.
“Under the current forecast, we don’t see interest rates in this country changing at all over the next year or so,” said Warren Jestin, chief economist at Scotiabank.
“Inflation is going nowhere fast. We may see some inflation in food prices or other areas but by and large the economy is too soft to generate inflation. There is no cost push in place.”
Jestin’s remarks came at the bank’s annual outlook event, held Wednesday in Toronto.
Scotiabank’s economists and experts offered their forecasts for the Canadian economy, the dollar, and stock markets in 2013 and 2014.
Consumers will benefit if interest rates remain at record lows, though economists are concerned about sky-high levels of household debt.
The global economy faces big challenges from the European sovereign debt crisis and the U.S. fiscal cliff, the slate of automatic spending cuts and tax hikes that will take effect at the end of this year unless lawmakers come up with a better plan.
At the same time, the global economy is changing, Jestin explained.
China’s economy may grow at 7.5 per cent for the next several years, rather than the 10-percent rate that it averaged over the last 25 years.
Growth is also likely to slow in India, Russia and Brazil.
“All these countries are expected to grow at a multiple of what we are going to expect in good years and bad in Canada, the U.S. Europe and Japan,” Jestin said.
China, for instance, is now the biggest automotive market in the world.
“The old paradigm was countries like china were low cost supplies of exports into the North American space. The new paradigm is they are the markets and the market opportunities and that is a very profound change.”
Global growth is likely to come in at about 3 per cent in the coming year, and “an increasing percentage of that growth will come from the emerging world.”
Still, “We’re reasonably optimistic about North America as we go through 2013 and 2014 and for all the challenges that we’re reading about, the opportunities are fairly substantial,” Jestin said.
Among the countries that use the common euro currency, many are in recession, or on the brink, with the exception of Germany.
“We will be talking about Europe as a debt problem five years from now. We will be morphing into different scenarios but the math doesn’t work,” Jestin said. “And if growth isn’t there, it’s not helping the revenue side of the equation.”
Though Canada’s economy has performed very well since the 2008 recession, it will now begin to slow as consumer spending and the housing gear down.
Housing markets in Vancouver and Toronto will see “a bit of a correction,” not a bubble bursting, Jestin said, adding that the economy and households in Canada are in far better shape than in the U.S. prior to the country’s housing bubble.
“We would only be more concerned about the housing market in Canada if we were to see a fracturing of job opportunities and declining employment. The fundamentals there remain pretty solid.”
The U.S. economy is likely to grow at a higher rate than Canada’s in the coming year or two, Jestin said.
The Canadian dollar is likely to remain close to par in the coming year, chief currency strategist Camilla Sutton said.
A soft landing for the Chinese economy, high oil prices, and Canada’s sound fiscal plan will help strengthen the loonie.
On the investing side, stock markets will remain volatile, though the improving U.S. economy should help boost equities, investment strategist Vincent Delisle said.


Published on Wednesday December 05, 2012

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