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
If you have additional questions or would like to see if
you can prequalify for a mortgage
in Ottawa, please call Chad Robinson at (613) 288-5836
or use our Ottawa
Mortgages Directory to find a mortgage
broker or mortgage
bank specialist to help you.