Canadians now spend more on renovations than on new construction. For many of them, the money for home improvements comes from using the equity built up in their houses to take out an equity loan or line of credit. Either of these options is fairly easy to obtain if homeowners have paid off enough of their mortgages, as the lender knows that the loan is secure. A wise borrower will use this fact to negotiate a better rate of interest. Those considering a home renovation should contact an Ottawa mortgages loan specialist for the best interest rates for either method of financing.
What is a Line of Credit?
An equity line of credit is secured against the built up equity in a piece of real estate. It is an ongoing agreement that the borrower has access to a certain amount of money that can be used at any time. Interest is only paid on the amount actually used. Furthermore, it can be used over and over again, as the borrower pays down the line of credit. There may be fees associated with activating a line of credit, and there is usually a minimum monthly payment. The interest rates on lines of credit are higher than on equity loans.
What is a Home Equity Loan?
Basically a second mortgage, this is a one-time loan with a fixed repayment schedule. It is useful for those who know exactly how much money they need, especially if they will only need it once. The fixed monthly repayment fee and term make it easier to fit into a budget. The interest rates are usually lower than those associated with a line of credit. Potential borrowers should check with their preferred Ottawa mortgage loans specialist for the best rates.
There are advantages and disadvantages to either method of financing a renovation. When using multiple contractors who will be paid at different times, it may make more sense to use the flexibility of the line of credit; contractors can be paid according to their schedules (so interest is only activated as the money is used) and there is enough cash available to cover any cost overruns. On the other hand, if the cost of the renovations is a fixed quote and there is a reasonable expectation that the project will start on time, a second mortgage will mean a lower interest rate and remove the temptation to upscale the renovation budget.