By: Karen Wilson
August 16, 2016
“WINTER IS COMING.”
Yes it is. Perhaps in a different way for those of us in Southern Ontario than those in Game of Thrones, but it’s coming nonetheless.
It’s hard to imagine right now, with the humidity that has hit us this summer. Days are getting shorter and darkness will come earlier. With that, the cooler weather will creep in. The typical result is less time spent outside and more time spent inside.
If you are going to spend more time inside, wouldn’t you rather have space that you are comfortable in? Wouldn’t you rather have space that is functional, warm, inviting? What are you waiting for? If your answer is ‘To win the lottery’ I may be able to suggest a few other options…..
ANSWER A COUPLE OF QUESTIONS FIRST
What is the intention of the renovation?
Be cautious if you are renovating for re-sale. Avoid personalizing your home to your needs and tastes if you are renovating as an investment. Keep it simple and make sure you are selling the home within two years of the up-dates, otherwise changes you’ve made may become worn and dated. Depending on the home, sometimes updating infrastructure is a better investment than finishing a basement.
As your family’s needs change will your space need to function differently?
Do you have a growing family or growing children? Do you have children that will be leaving the nest soon? Are you planning to accommodate aging parents? It’s certainly not possible to accommodate every anticipated or unexpected life change. However, taking the time to consider possibilities may assist you in articulating your needs to a Designer.
How long do you plan to stay in your home?
If the answer is less than five years, then consider the investment for re-sale. If the answer is until the kids move out, you may be looking at anywhere between five and twenty years, depending on the age of your kids and how many you have. You may have already been in your home for the last 10 years and love your neighbourhood and your neighbours, so the answer may be that you want to be able to retire in your home. When you plans are long term, it’s worthwhile considering a renovation for yourself and how you and your family use the home.
MAKE YOURSELF A WISH LIST
It’s one thing to pin a thousand pictures on Pinterest or Houzz, but what do you really need? Sometimes we have rooms in our homes that just don’t function the way we need them to, like the kitchen or the bathroom. If a tile floor is cracking and missing grout, then a new floor is a need. If it’s impossible to navigate around the kitchen island if there is more than one person in the kitchen or an appliance door is open, then a kitchen renovation may be a need. Do you desire an Ensuite so that you don’t have to share the bathroom with your teenage kids? Consider what is and isn’t working for you in your space to help you come up with a list of changes you’d like to see happen. You’ll find your list will contain both needs and wants, but this kind of ‘homework’ can also assist a Designer in coming up with the best plan to suit you.
HOW DO I PAY FOR IT ALL?
Martha Uniacke Breen from Style at Home has some great pros and cons of different Financing options.
Great if you have it, especially for small projects. But if you have a substantial sum in a high-interest investment account or mutual fund, withdrawing it in order to finance a renovation may not always be in your best interest. You should measure the loss in compound interest that the money would have earned if you left it in the bank, plus any penalties for early withdrawal, against the cost of an equivalent loan. In some cases, a loan might actually be cheaper.
Also for smaller renovation projects, but there are pros and cons to financing with plastic. On the plus side, you can pay off as much as you like each month, as long as you cover the minimum payment. It’s also a convenient way to buy what you need at retail stores and to keep track of your spending. However, there’s a price for all that convenience: interest rates are generally much higher than with other types of loans and a maxed-out credit card carries a range of problems, from a lowered credit rating to the beginning of a debilitating debt spiral. For larger amounts, you still may be better off with a conventional loan or line of credit.
A bank loan is the most straightforward way to finance a renovation, or any item that requires a large initial outlay of cash. Fixed repayments are withdrawn from your bank account at regular intervals, such as weekly, biweekly or monthly. If your budget allows, try to arrange weekly payments. Since the repayment total equals the sum of the original loan (or “principal”) and accrued interest, over time weekly payments can reduce this amount much more quickly than a single monthly payment.
Personal line of Credit (Unsecured)
These popular lending vehicles have flexible repayment terms and fixed or variable interest rates, making them useful for projects where you’ll be paying as-you-go or in installments. PLCs allow you to borrow up to a prearranged limit and pay off all or a portion of the balance each month above a minimum (which is usually fairly small).
Secured Line of Credit, Home Equity Loan
Similar to loans and PLCs, but with lower interest rates, since the equity in your home (i.e., its total value less the cost of your mortgage) is used as collateral or security. This can be a great low-cost source of funds, but it’s really a type of second mortgage, with all the drawbacks that entails, including the possibility of foreclosure if you default.
Refinancing your existing mortgage allows you to spread the payments over a much longer period of time, usually at a lower rate even than a secured PLC, and gives you access to as much as 80% of your home’s appraised value. Costs may include legal and appraisal fees, and sometimes penalties, which you should weigh against the cost of other borrowing options. **Another option is to allow extra funds for renovations when you take out a new mortgage, such as when you purchase a home.
Financial advisors generally advise against these mortgages, as they are really nothing more than highly restrictive regular mortgages that you don’t make payments on, so interest on them compounds unhindered — to the advantage of the lender. If you want to borrow against your home’s equity, you’re probably better off with a new mortgage, home equity loan or secured line of credit.
Talking to a financial advisor or a mortgage expert can help give you clarity on which option suits you best. Happy Renovating!
Have a Design Quandary? Send a photo or floor plan to me at email@example.com Please put Design Quandary in the subject line. I’ll choose one to solve in my next newsletter.