Can I Increase My Mortgage to Pay for Home Renovations?
Whether your home is in need of repair, or you simply want to update a space that isn’t working for you and your family anymore, home renovations can be expensive. Loans on credit cards can be costly with their high interest and even if you have the cash, you may not want to deplete your savings that much. A popular option for many homeowners is to increase their mortgage in order to pay for the renovations. Not only is this a lower-interest option than most other strategies, but since the renovations are likely increasing the value of your home, it makes sense to use your home equity to pay for them.
There are two main ways that you can use the equity in your home to pay for your home renovations. These are refinancing and using a second mortgage.
Refinancing to pay for a home renovation.
When you refinance to pay for a home renovation, you will be cancelling your current mortgage and getting a new one with the cost of home renovation rolled in. In order to do this, you will need to have enough equity in your home to pay for the renovation. Most lenders will let you borrow up to 80% although there are a few that will go even higher than this.
It is important to remember however, that cancelling your current mortgage early will trigger a financial penalty and the farther away your mortgage renewal date is, the higher this penalty will be.
Using a second mortgage to pay for a home renovation.
Another way that you can use the equity in your home to pay for a home renovation is with a second mortgage. In this scenario, you don’t have to break your current mortgage. You can simply get an additional (a second) mortgage against the equity in your home in order to pay for the renovation.
With this option, you will not have to pay a financial penalty, but your interest rate will be a little higher than it would be if you refinanced.
Which option is best for me?
Whether you choose to refinance or to get a second mortgage for your renovations should depend primarily on which option is more affordable. You may need the help of a professional mortgage broker to do the calculations on this. Generally speaking though, the closer you are to your renewal date the more likely it is that refinancing will be the better choice, and the farther you are from your renewal date, the more likely it is that a second mortgage will be the better choice.
If you are considering a home renovation and would like to learn more about how you can use your mortgage to pay for it, contact Matrix Mortgage Global today.