Renovating? Consider a Refinance Plus Improvements

Renovations Nathan Lawrence 30 May

In previous posts (links shared below) we have discussed in detail both refinances and purchase plus improvement mortgages.  Both of which are tools that can help either a current home owner (refinance) or a home purchaser (Purchase Plus Improvements) structure the mortgage in a such a way which allows the client to roll the cost of improvements into the home.

This post is going to take the idea of refinancing to access equity for home improvements one step further…Introducing the Refinance Plus Improvements Mortgage.  Similar to the Purchase Plus Improvements Mortgage, it allows you to access more money for home renovations which increase the value of the home.  The refinance is based on the future (or post improvement) value of your home.  Basing the refinancing on the future value of the property allows the borrower to access additional funds compared to a standard refinance.

Let’s take a closer look at how a Refinance Plus Improvements mortgage can get you the extra cash you need to get your renovations completed.

The Standard Refinance

An everyday refinance allows the home owner to access up to 80% of the fair market value of the home.  The value is typically determined by a Market Appraisal on the home.   Here is how it would look:

  • Current Appraised Value of the home:  $250,000.00
  • Max New Mortgage Amount: $200,000.00  ß 80% of present value
  • Your current Mortgage Balance: $190,000
  • Equity Available to you for the renovations: $10,000.00

*Note: some of the equity will cover closing costs (it is a new mortgage after all, so a new registration and fund advance needs to happen. If you are breaking a current mortgage, there could be a pre-payment penalty as well)

The remaining equity can be used towards your improvements.  But what happens if it’s not enough to cover the improvement costs?  You’re now stuck with either making sacrifices to your dream reno, covering the additional costs out of pockets, use a higher interest line of credit or not doing the renovations at all. None of which are a great options.

The Refinance Plus Improvements Mortgage

Here is how the Refinance Plus Improvements mortgage can make all the difference.

For argument sake, let’s assume for a moment that the home owner is thinking about renovating their kitchen and main bathroom.  These are in no way a small improvement. They are quite significant improvements…new flooring, cabinets, counter tops and paint in the kitchen along with a full gut and renovation in the main bathroom.

After sitting down with a Mortgage Broker to determine mortgage affordability, the home owners next step is getting estimates for the renovations.   After having multiple contractors quote on the work, the home owner settles on a contractor that has quoted $20,000.00 for the job (Labour and materials costs, all in, turn key project).  Let’s also assume for a moment that the renovations are going to increase the value of the home by $30,000.00 (side note: Kitchen and Main Bathroom Renovations can have the biggest impact on the value of a home). Here is how it would look:

Refinance Plus improvements:

  • Current Home Value: $250,000.00
  • Post Renovation Home Value: $280,000.00
  • New Max Mortgage Amount: $224,000.00
  • Your Current Mortgage Balance: $190,000.00
  • Equity Available for the renovations: $34,000.00

See the difference?  The refinance plus improvements in this scenario can get the home owner access to an additional $24,000, far exceeding the improvements planned for home.  No sacrifices required. No unsecured higher interest financing required. No need to tap into personal savings. Just a nice new mortgage with a low interest rate and one simple payment.

In a future post, we will cover the particulars regarding how the refinance plus improvement funds are advanced and a few other details that you are going to want to know.  If you have questions about how a refinance plus improvements mortgage can make all of the difference with your renovations plans, please feel free to connect with our team.  We are always happy to chat mortgage strategy with you while at the same time shopping the market and rates on your behalf!

Happy Renovating!

Purchase Plus Improvements – You just Found your Dream Home!! Sort of …

5 Reasons to Refinance Your Mortgage

 

5 Reasons to Refinance Your Mortgage

Refinance Nathan Lawrence 24 May

Every year our team recommends a quick review of your mortgage and overall financial picture.  The majority of those annual reviews lead to quick and simple changes such as a payment increase to tackle your mortgage debt quicker, making a one time lump-sum payment or a change to the payment schedule to better line up with payroll dates.  However, sometimes the conversation changes to discussions around the options available for refinancing your mortgage.

In short, a refinance is the restructuring of your mortgage to access equity which has built up over the years of the client making their mortgage payments in combination with regular growth in the value of the home.  That equity, can be accessed by the client through a refinance process.  A refinance can happen during the current term of your mortgage or on renewal date.  Understanding which option is best comes down to a benefit/cost analysist to ensure that the refinance will improve your overall financial picture.

NOTE: A refinance is not always the answer and may not put you in a strong financial position.  Its important to review what your needs are and balance those with the potential costs of breaking a mortgage term vs. the savings that you will generate.  A great Mortgage Broker will make sure you understand all of this before proceeding.

 

Here are some of the most common reason a mortgage holder would consider a mortgage refinance.

  1. Reduce Your Monthly Mortgage Payments

Sometimes life will throw us a curve ball; a strike at work, job layoff, sick family member, the list is endless.  Those curve balls might make your current mortgage payments a bit more than you can handle.  By refinancing your mortgage, you can re-amortize the payments for a longer term, reducing the minimum monthly commitment that you have to make each month, freeing up your cashflow to address everyday living expenses.

  1. Consolidate credit cards, loans, or other unsecured debt into a new low interest rate mortgage

If you find yourself in a position where you are paying a significant amount in interest payments every month on your unsecured debt, then refinancing might be a great solution.  Credit cards often come with interest rates around the 19% range and unsecured lines of credit tend to be around the Prime + 4 range or higher.    These high interest rates can make it difficult to actually tackle the debt and the add additional monthly payments into your personal budget.  Accessing the equity in your home by way of a refinance can allow you to pay off those debts and consolidate them into one, low interest, mortgage payment.

  1. Finance home renovations

Perhaps you need to complete some much-needed home renovations that are either planned or unplanned but you currently do not have enough money set aside for the projects.  Rather than using a line of credit (or worse a credit card) you can refinance your home, pull out the equity, and cover the cost of the renovations using the home equity. This debt would then be worked into your new mortgage at a much lower interest rate, while at the same time you’re increasing the resale value of your home.  Ask us about how a Refinance Plus Improvements mortgage might work well for you.

  1. Planning for a big purchase.

Thinking about buying a car, an rental property, investing money in a business, early inheritance to family, covering education costs for a child or grandchild?  The list is endless.  The equity you have in your home can be used for anything like this and can be much cheaper than financing a similar plan by way of unsecured debt.

  1. Finding a new Lender

Not all mortgages are created equal, the rates are always changing, some are no-frills, and some have great features.  Or, maybe you are simply frustrated with the service that you are receiving from your current lender.  Depending on what you are looking for, refinancing may put you in a better position to take advantage of lower interest rates or the ability to pay off your mortgage faster.

 

With mortgage financing, it all comes down to finding the right plan and product to fit you needs.   Take the time annually to review your financing and if you think that one of the above refinance reasons hits close to home, give our team a call.  We are here to review those options with you, discuss the pros/cons and help guide you to a solution that meets your household needs!

Purchase Plus Improvements – You just found your dream home!!…. sort of

First Time Home Buyers Nathan Lawrence 8 May

In a competitive real estate market or a market that is suffering from a lack of available listings, the Purchase Plus Improvements mortgage could be your saving grace.  Regardless of whether you’ve just started your search for a new home or if you’ve been hunting for months, this is something that you should be thinking about each time you walk into a potential house.

Of all the homes that you’ve looked at so far, you have likely walked into at least one home by this point and said to yourself “Well this house looks great, but if it wasn’t for that incredibly dated _______”.  You fill in the blank here…Kitchen, bathroom, flooring, basement, etc.   If you have passed up the opportunity to purchase that potentially perfect property because of the costs of required improvements, it’s important that you know there is a solution to your problem.  Enter, the Purchase Plus Improvement Mortgage.

In a nutshell, a purchase plus improvements mortgage allows you (the home buyer) to roll the costs of improvements into your mortgage.  The new mortgage allows you the ability to finance those much-needed repairs and get you into that home of your dreams!   The mortgage comes with a great interest rate and one simple mortgage payment.  Had you chosen to purchase the home and not include the renovation costs into the mortgage, then you might end up financing the improvements on a higher interest rate unsecured debt which also give you a second payment to make each month.

The first step to take is a conversation with your Mortgage Broker about specifically how that Purchase Plus Improvements Mortgage would apply to your application and specific situation.  Understanding the types of improvements that can be included in the financing will help you better understand which potential houses might work great for you.

Working with your Realtor, the Mortgage Broker will help guide you through the final approval process.  The main difference between a Mortgage vs. a Purchase Plus Improvements Mortgage is the need for quotes.  As part of the verification process, your Mortgage Broker and the Lender will need to see a quote for the work that is planned for the improvements.  The quotes will provide us with the cost and plan details required to secure the final approval.  Getting you into a house of your dreams!

If you have questions about how a Purchase Plus Improvements Mortgage could work for you, take the time to connect with our team anytime!!