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Can You Add Renovation Costs to a Mortgage?

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A hand illustrates blueprints for a potential home renovation on the left while the right side shows a photo of the finished project.

WhetheRenovations can help make your dream home a reality. As much as we wish you could dive right into the project’s aesthetics, you can’t ignore the financial logistics of this journey. 

A mortgage is already an immense responsibility. Fortunately, you can add renovation costs to your mortgage through certain financing options. 

However, being eligible for this option depends on several factors, such as: 

  • Current mortgage terms
  • Scope of the renovations 
  • Whether you’re first-time purchasing or remortgaging

If you’re purchasing a new home, you may qualify for a purchase-plus-improvements mortgage, which allows you to include renovation costs as part of your mortgage.

As an existing homeowner, refinancing your mortgage or tapping into your home equity may be viable options to secure renovation funds.

Each of these options comes with unique benefits and considerations. No matter your goal, our experienced team can help verify the vision for your renovation reasonably aligns with your mortgage plan.

Purchase-Plus-Improvements Mortgage

If you’re buying a home that needs some work, a purchase-plus-improvements mortgage allows you to add renovation costs to your mortgage. It can help keep your mortgage lower instead of higher personal loan rates. 

Plus, it builds instant equity if your renovations significantly increase the home’s value.

The lender will approve additional funds provided you have a clear renovation plan and quotes from contractors. Your lender releases the funds in stages to verify that you’re using your loan to complete renovations. 

Renovation Mortgage Financing with Your Existing Mortgage

For existing homeowners, refinancing your home (mortgage refinancing) replaces your current mortgage with a new one, often at a lower interest rate. It’s worth looking into if you don’t want to acquire funds subject to higher interest rates, such as a line of credit or personal loan. 

Mortgage refinancing looks into your current principal amount (what you owe on your home), allowing you to borrow up to 80% of the appraised value. You can borrow extra funds beyond the remaining balance on your mortgage to cover renovation costs.

Refinancing could mean a higher monthly payment, but it can also change your mortgage conditions. You could save money in the long run. 

With refinancing your home, you might: 

  • Lock in advantageous interest rates
  • Increase your monthly mortgage payments
  • Simplify your payments by consolidating costs

Early refinance penalties might apply depending on your current mortgage terms. Understanding these terms is crucial for choosing the most beneficial refinance option for your goals.

Home Equity Loans or Line of Credit (HELOC)

A home equity loan (HELOC) allows you to borrow against your property’s equity at a low interest rate only if you own a significant portion. Here’s what to keep in mind:

  • Flexible borrowing options with a HELOC
  • You’ll need a sufficient amount of home equity to qualify
  • Often comes with lower interest rates compared to unsecured loans
  • Your property serves as collateral; non-payment could result in foreclosure

The HELOC is an inexpensive way to borrow money to cover renovation costs. You may need to have an appraisal to determine the value of your home, and then you’ll be able to finance 80% of that amount and then borrow 65% in a HELOC. 

Grants & Rebates 

As your home’s current resident, renovations always feel like an investment. However, not all projects automatically increase your property’s value. 

A fresh coat of paint may add to curb appeal, but major projects like adding an extra bathroom or upgrading to energy-efficient systems can deliver greater returns in the long run.

If your goal is to make your home more energy-efficient, you can subsidize the cost. Federal, provincial, and municipal governments and certain local utility companies might offer rebates and grants, such as: 

A happy couple meets with their mortgage broker to discuss viable renovation financing options.

Keeping Your Home Loan & Renovation Financing Separate: Alternative Options 

Adding renovation costs to a mortgage isn’t the only way to finance your project. Options like credit cards, personal savings, or a personal line of credit are all viable funding routes, depending on the size of the renovation. 

Credit Cards 

Credit cards can provide a quick and convenient way to finance smaller renovation projects. 

With a credit card, you can make purchases immediately, allowing you to start your renovations quickly without delay. Depending on your credit card perks, like a rewards program or cashback, you may reduce overall costs.

Here are some things to consider if you plan on funding your renovation via credit card: 

  • High interest rates if you don’t pay off the balance quickly
  • Limited borrowing capacity compared to other financing options
  • Risk of accumulating debt if not managed responsibly

Personal Savings 

Using personal savings to fund your renovations eliminates the need for borrowing, meaning there are no interest or repayment obligations. 

Dipping into your savings lets you have greater control over your budget since you can only spend what you have, helping to keep this project debt-free. 

Despite the benefits, you should also recognize that using your savings:

  • Depletes your savings, which may take time to rebuild
  • Limits financial resources for emergencies or future investments
  • May delay renovation plans if savings need time to accumulate

Personal Lines of Credit 

A personal line of credit offers flexible access to funds as needed, making it a suitable choice for ongoing or larger renovation projects. You’re only charged interest on the amount you use, not the total credit limit, offering lower interest rates than credit cards. 

Keep in mind this financing option: 

  • Requires good credit to secure favourable terms
  • May be challenging to qualify for higher credit limits
  • Missed payments can negatively affect your credit score

Find a Pathway to Reach Your Goals

Although there are financing options to help make your dream home a reality, you must consider whether you can adequately repay this debt. A mortgage is already a massive undertaking. Don’t let unaffordable renovation plans throw you off track. 

At Mortgage Connection, we can simplify the mortgage and renovation financing process. Connect with our team for advice. We’re here to help make your goals a reality!

Written by
Josh Higgelke

Josh is a natural leader and driven entrepreneur. It is fitting that he is a Managing Partner and Broker of Record for Mortgage Connection. Josh has always had a love for everything real estate related and became a Mortgage Broker in 2007. He has since been recognized as one of the top leaders in his field. His energy for life is contagious and he has a passion for the mortgage business. Josh is a builder of systems and people. He is actively involved in both residential lending and commercial lending and strives for Mortgage Connection to be the best option for all real estate financing needs.

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