Do I Have to Mortgage my House to Renovate It?
It is normal for a house to weaken as time goes by, and it needs some renovations after a few years. However, in order to do these this work in your house, you need enough funds. For small or medium size projects, financing them with your credit card or a personal loan might be quite suitable. You can also use your earnings if you have enough money to do the renovations you wish to realize, whatever their size is.
On the other hand, if the planned works are major, theses financing methods could turn out to be insufficient. Thus, financing the renovations using your mortgage could be a much more appropriated way to accomplish your goals, whether it is by a purchase financing, a mortgage refinancing, or a second mortgage, since the interest rate for mortgage is lower than for other types of loan.
If you are planning to buy a house and renovate it, adding the financing for the works on the mortgage loan could be a good solution for you. To do so, you will have to estimate precisely which works are planned and what is their value, of course, and then keep a safety margin for the unexpected.
If your goal is to do a flip, and hence resale the house quickly after the renovations are done, traditional financing institutions will probably be reluctant to grant you a loan, since it is a risky operation. In that case, private lenders for mortgage will possibly be more interested by your project.
You can also use your home equity in order to get a financing for your works. In this way, you can borrow up to 80 % of your house’s value minus the balance you still have to pay on your mortgage. The refinancing works equally with a traditional bank and with a private mortgage lender.
Moreover, just like the purchase financing, you will have a longer period to repay the cost of the renovations at your disposition, with an interest rate rather low. Meanwhile, your house’s value on the market will continue to increase, especially once the renovations will be finished.
If you are not eligible to refinancing, you still have a last solution, which is to contract a second mortgage. This one adds up to the first one, but is granted by a different lender. So it is often a private mortgage based on your home equity. Hence, you have to repay both loans at the same time.
Furthermore, this method is considered rather risky. Indeed, if something occurs and prevents you from paying your debts, and then you receive a 60-day notice, the lender of the first mortgage has the priority to receive a reimbursement once the house is sold. It is also for this reason that interest rate for a second mortgage is often higher than for the first one, not only because it is a private loan.
In any case, at Clic Hypotèque, we will be able to offer you a private mortgage financing suited to your situation. And this, confidentially.