Of Prime Interest: Home improvement options

Many lenders offer attractive refinancing for renovations while mortgage rates are not affected by the Improvement Program.

  • Aug. 26, 2015 12:00 p.m.

The Improvement Program provides home buyers and home owners with the opportunity to make improvements to their home by borrowing against the improved value of the property. The improved value is the market value of the property after completion of the improvements. Many lenders offer attractive refinancing for renovations while mortgage rates are not affected by this program.

In the case of your existing home, the property would be appraised first.

Then the appraiser will then take into consideration the renovations, costs associated and provide a new value for your renovated home.

The new mortgage financing will be based on this new improved home value.

Keep in mind the rules in the case of refinancing your mortgage do not allow for the mortgage amount to exceed 80 per cent of the improved value.

If you have an existing mortgage, it will be paid out from the “as is” value and the additional funds required for the renovations will be advanced to you when the work is completed.

As mortgage rates continue at an all time low, in addition to updating your home chances are you will also secure a new lower mortgage rate and possibly even a lower monthly mortgage payment.

Alternatively, in your search to purchase a new home you may be coming up short—the house is the perfect size and location but may need an update such as new flooring or perhaps a new kitchen or bathroom.

The purchase plus renovation program is available with as little as five per cent down on the improved value.

Negotiate your best price on the home purchase and at the same time decide what you would like to do in terms of renovations or improvements.

At that point, you will be required to obtain quotes for the work you would like to have done.

The quotes are added to the purchase price and the mortgage financing is based on the total cost of renovations plus the price of the home.

In both cases—renovating your existing home or a new purchase—you will have to pay for the renovations or negotiate with the contractor as the balance of the funds will not be released to you until the renovation is complete.

For example, based on a purchase price or existing value of your home of $400,000 and a renovation cost of $40,000,  the improved value of the property will be $440,000, which will be the amount the financing is based on.

In the case of a purchase, you would be required to put a minimum of five per cent of the improved value as down payment.

The mortgage funds based on the $400,000 existing value or purchase price will be advanced to at closing.

These funds will either complete your sale or pay out your existing mortgage.

You will then complete the renovations and on completion and inspection by a lender representative the balance of the funds will be advanced to you through your lawyer.

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