Tapping into Your Homes Equity

Tapping In To Your Homes Equity


Sometimes, the house of your dreams is the one you're already living in.

Maybe it just needs some new landscaping, an extra wing for your growing family, an expanded kitchen, or a swimming pool in the backyard! A record number of Canadians have taken advantage of the historic low mortgage rates and rising real estate values and have tapped into their home equity through equity take-outs. There's never been a better time to access the extra funds that can help bring your home to that next level of comfort. Consider accessing the cash you need for the renovations and improvements you've been dreaming about!

 

HOME RENOVATIONS Home Renovation Financing Options

Financing is available from Institutional lenders and from Private lenders. Whatever your renovation/construction needs, we have a “Money Solution” for you. Any size of funding is not a problem as we have the lenders to get you the money you need.

Before You Begin

Whether you intend to finance your renovation yourself or borrow money, you should talk us before you make firm plans. We will 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.

There are many homes offered for sale that have great potential but are in need of repairs or renovations. These homes are generally sold at prices that represent excellent value. While the value of these homes is attractive, financing the necessary work has often been difficult. Wouldn't it be nice if it were possible to buy that "fixer-upper" at a great price, immediately have it renovated into your dream home, and do it all with one manageable mortgage, and a minimum down payment?

Well, it's possible with a CMHC "Purchase Plus Improvements" mortgage. Now you can purchase a home, renovate it the way you like and pay for it all in one mortgage payment at first mortgage rates. All of this can be done by putting down as little as 5% of the "as improved" value.

Explore Your Options

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 80% of your home’s value.

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%.

How Does It Work?

When you have decided you have found the house, have a qualified contractor put together a description and a cost estimate for the proposed repairs or renovations. Bring your "contractor's Estimate" to your broker.  Then make that offer conditional on getting a CMHC "Purchase Plus Improvements" Mortgage. Since the offer will be conditional on arranging this type of financing you are not at risk in the event that CMHC feels that the cost of the proposed renovations are not fully reflected in the "as improved" value. Next, your broker will submit your application along with the "offer to Purchase" to CMHC on your behalf and get back to you very quickly with the decision.

For example, if you purchased a home for $120,000 and wanted to do $30,000 worth of renovations, CMHC will insure a mortgage based on 95% of the "as improved" value. In other words, with a down payment of $7,500 (5%) CMHC will insure a mortgage of $142,500. The key for this to work is that the cost of the renovations has to be reflected in the "as improved" value of the house. In this example, CMHC would have to agree that the house would have a value of at least $150,000 after the $30,000 worth of proposed renovations is done.

The insured loan will be based on the lower of either, the purchase price plus the actual cost of improvements or the "as improved" market value. (see below for example scenarios)

Remember, however, that in the case of 90-95% financing is only available if the lending value does not exceed the price ceiling for your area. Price ceiling are either $175,000 or $300,000.

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 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.

Renovation Mortgage Examples

Situation A:

The cost of the renovations is fully reflected in the increased house value.

Purchase Price

$ 120,000

Cost of renovations

$ 30,000

Total House Cost

$ 150,000

(purchase price + cost of renovations)

"As Improved" Appraised value

$ 150,000

Maximum Mortgage Loan Amount*

$ 142,500

(95%** of the "as improved" value of 150,000)

Minimum amount of borrower funds required**

$ 7,500

(The difference between the total house cost of $150,000 and the maximum loan amount of $142,500. In this example the cost of renovations are fully reflected in the "as improved" value therefore the minimum down payment represents 5% of the "as improved" value of $150,000.)

First Advance on purchase

$ 112,500

(The purchase price of $120,000 less the minimum down payment of $7,500)

Second advance after improvements

$ 30,000

(The first and second advances together total the mortgage loan amount of $142,500)

Situation B:

The Cost of the renovations is greater than the increase in value.

Purchase Price

$ 120,000

Cost of renovations

$ 30,000

Total House Cost

$ 150,000

(purchase price + cost of renovations)

"As Improved" Appraised value

$ 145,000

Maximum Mortgage Loan Amount*

$ 137,500

(95%** of the "as improved" value of 145,000)

Minimum amount of borrower funds required**

$ 12,500

(The difference between the total house cost of $150,000 and the maximum loan amount of $137,500. In this example the "as improved" value is $5,000 less than "the total house cost". Therefore, the minimum required is $5,000 more than it is for "Situation A")

First Advance on purchase

$ 112,500

(The purchase price of $120,000 less the minimum down payment of $7,500)

Additional funds required to complete renovations

$ 5,250

(This amount plus the minimum down payment of $7,250 equal the "Total minimum amount of borrower funds required of $12,500)

Second advance after improvements

$ 30,000

 

What's Next

Call to Review

First time buyers, renewals or refinancing, call for a free quote!

Contact

Apply Now

We shop for the best mortgage option at no charge to you.

Get Started

Mortgage Services

Money saving options based on your specific mortgage situation.

Learn More