Are you thinking of sprucing up your home with a much-needed renovation this year? Whether it’s a new kitchen or bathroom, with mortgage interest rates at an all-time low, there’s never been a better time to borrow for that dream renovation. According to a new CIBC poll, over a third (39 per cent) of Canadian homeowners plan to renovate their homes in the next year, spending on average $15,300. If you’re thinking of taking a hammer to your abode this summer though, ensure your budget can handle it before you start knocking down walls.
Albertans Plan to Spend the Most on Home Improvements
It should come as no surprise that wild rose residents plan to spend the most on home renovations in the coming year – with an abundance of well-paying jobs in the oil sands and a booming economy, Albertans have the financial means to consider a renovation as a wise investment. Homeowners in Canada’s economic engine plan to spend by far the most – $22,900 on average – on their home improvements. Alberta homeowners also hold the distinction of being the most likely to renovate – 52 per cent plan to do so this year.
Small Budgets in Central Canada
In Ontario, where the economy is stalling and the manufacturing sector is struggling, things aren’t as rosy. Although Ontario homeowners ranked as the third most likely to renovate this year – 40 per cent of homeowners plan to renovate – Ontarians have a much smaller budget, spending on average only $13,100. Meanwhile, homeowners in Atlantic Canada plan to spend the least nationwide, spending a meager $11,000.
Retirees Most Likely to Renovate
Although Canadians ranked paying down debt as their most important financial priority in the CIBC poll, those nearing retirement plan to spend the most on renovations. Canadians aged 45-54 plan to spend on average of $18,300 on home renovations in the next 12 months, $3,000 higher than the Canadian average. If you have a large retirement nest egg investing in home renovations might make sense, but if you’re living pay cheque to pay cheque with no retirement savings, an expensive home renovation will just put you further in debt.
Financing Home Renovations
Although it’s probably not a good idea to cash in your RRSPs for a fancy home renovation, a healthy rainy day fund can be called upon to make a redo possible – just make sure you don’t totally deplete your emergency savingst. If you don’t have the luxury of savings, it’s important to choose the right low-cost borrowing option. HELOCs (home equity lines of credit) allow you to tap into the equity of your home at rock bottom interest rates – usually only one per cent above prime rate. If you haven’t built up much equity in your house, an unsecured line of credit is always an option. If you’re financing your renovations through debt, it’s important to have a repayment plan, as your goal should be to build up equity in your house, not reduce it.
Renovations That Increase Your Property Value
If you’re a fan of home improvement reality shows, you likely understand the positive impact good renovations can have on your property’s value – and which ones may not. Although you may dream of an in-ground pool, most homeowners probably won’t share your love – in fact, it could hurt the resale value of your home.
If you have a limited budget, it’s important to prioritize your renovations. Start with the work that will give you the biggest return on investment. According to Scott McGillivray, host of “Income Property”, kitchens and bathrooms are a great place to start. You might also consider putting in a rental suite – not only does it offer a great return, you can rent it out and pay down your mortgage even faster. However, huge additions like adding a second story to your home pay not be a great idea – Remodeling magazine states that for a cost of $170,000 you might only increase your home’s value by $100,000.
With a clear plan and the right renovation you can increase the value of your property, but it’s important to have a plan and stay on budget. Things don’t always go according to plan, so McGillivray recommends setting an extra 20 per cent aside for any unexpected expenses.
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