Can You Add Renovation Costs to Your Mortgage?
Home renovations can add a lot of value to your home both in terms of your house’s market value and in terms of your own enjoyment. Major home renovations however can be quite expensive, and if you do not have all of the money saved up, you will have to borrow it from somewhere. One option that appeals to many homeowners is adding the cost of renovations to your mortgage aka – a home improvement mortgage.
This option makes sense particularly if you have built up equity in your home and if the renovations will increase your home’s value. It is certainly a better option that putting the renovations on high-interest credit cards!
How Can You Add Home Renovation Costs to Your Mortgage?
There are two main ways that homeowners can add the costs of their renovations to their mortgages. One is by refinancing their mortgage and the other is by getting a home improvement mortgage or second mortgage.
Refinancing a mortgage happens when you break your existing mortgage and get a new one. Homeowners often do this in order to get lower interest rates but they can also do it to access the equity in their homes for reasons such as debt consolidation, to pay for emergency expenses or to fund projects like home improvements.
A home improvement mortgage is a second mortgage. It doesn’t require you to break your existing mortgage – it is simply a loan that allows you to tap into the equity that you have already built up in your home. These types of mortgages come at higher interest rates than first mortgages but they have much shorter terms so you can pay them off more quickly.
Which Strategy Makes the Most Sense for Me?
That really depends on your current lender and the terms of your existing mortgages. Refinancing usually comes with some kind of financial penalty for breaking your mortgage. The closer you are to your renewal date however, the less costly that penalty will be.
Second mortgages or home improvement mortgages will have higher interest rates, but overall they may still be the better option if your mortgage renewal date is not close.
The best thing to do is to sit down with your mortgage broker who can go over the numbers for you and help you determine which option makes the most sense for you.
If you are planning a home renovation and would like to learn more about how you can add the costs to your mortgage, contact Matrix Mortgage Global today.