Can I borrow more than my home is worth for home renovations?

There are several mortgage products out there that you can use to help you fund a home renovation project. These include mortgage refinancing, home equity loans and second mortgages. When you are borrowing from the equity in your home, typically you can borrow no more than 80% (sometimes as much as 90%) of the equity that you have. That means that if your home is worth $400,000 and you still have $100,000 owing on your mortgage, you have $300,000 in home equity and you’ll be able to borrow up to $240,000.

But what if you want to borrow more than you have in home equity or perhaps even more than your home is worth? You may be able to do this if you get a construction loan. A construction loan is similar to a mortgage with the important distinction that it takes into account how much a home will be worth after construction or renovation is completed. 

Unlike a mortgage, a construction loan is not paid out in a lump sum but rather it is paid out in stages directly to your contractor at agreed upon times or stages in the renovations. This helps to prevent unscrupulous contractors from taking the money but leaving before the job is completed. 

Should I borrow more than my home is worth to complete renovations? 

To answer this question, you need to know how much a home renovation is likely to increase the value of your home.  A real estate agent or appraiser is a good place to start when you want to know the value of specific types of renovations. 

If your home is in bad shape but located in a desirable neighbourhood, then there is a good chance that even if you borrow more than your home is worth, your renovations could be a good investment. This is especially true in a hot housing market. 

On the other hand, if renovations are not likely to add a lot of additional value to your home, you could be better off selling your home as is and moving to another location.

Contact Matrix Mortgage Global today!

If you considering home renovations and would like to explore your borrowing options, we would love to help. Contact Matrix Mortgage Global today for a consultation.