We’ve talked a lot on this blog about using HELOCs to pay for home renovations, and it’s no wonder why – that’s the form of payment 37% of Canadians use when it’s time for a remodel or a reno on their home. But aren’t there other ways to pay for these types of projects? Of course there are! But aside from saving, a HELOC is still your best bet, and here’s why.
Other than HELOCs, the other favoured way for Canadians to pay for their home renovations is through credit cards. While these are definitely one of the most convenient forms of payment, they’re also one of the most dangerous. One of the risks to using a credit card is that it’s simply too easy to whip out that credit card, and even too easy to think about that minimum balance. When using a HELOC, homeowners tend to think about the amount of home equity they’re dipping into, while with a credit card, consumers generally tend to be concerned with their limit first, and not going over it – regardless of how deep they’re already in with that credit card. And only thinking about that minimum payment is also dangerous. The majority of credit cards have an interest rate of at least 18%, with several going even higher than that.
A straight line of credit is another choice for homeowners wanting to renovate, but there is risk here, too. The problem with a line of credit, says Farhaneh Haque, TD Canada Trust’s director of mortgage advice, is that it’s far too easy to add more onto the line of credit, and forget to pay it off with lump sums when you can.
Lastly, refinancing your Toronto or Edmonton mortgage might be what’s needed. Refinancing so that you have a longer term or longer amortization will reduce the amount of your monthly payments, freeing up some cash in the meantime. This can be a great option for homeowners, but still there are things to remember. When you extend your mortgage’s life, you will always end up paying more in interest; and how much more will need to be closely examined before deciding this is the best route for you.
Of course, there’s also always the extremely sound argument of just saving up for those home renos until you have enough to pay for them out of your own pocket. With absolutely no interest charges and no borrowing fees, simply saving up the cash for a rainy reno day will always be the safest way to pay for your renos. If you can’t do that however, HELOCs still win when it comes to the best form of payment.
