You love your home. Maybe you love the neighborhood, the yard, the schools, the neighbors—or simply the life you’ve built there.
There’s just something about the home itself you’d love to change.
Maybe it’s the kitchen you’ve been talking about for years. A primary suite that needs a serious rethink. More room for family. A finished lower level. An addition. Or several projects that have slowly turned into one much bigger plan.
If renovating has been on your mind, there are two questions worth exploring:
What will the renovation realistically cost—and how do you want to pay for it?
You don’t necessarily need to answer one before you start thinking about the other.
A conversation with a contractor or other appropriate professional can help you define the scope of your renovation and develop a realistic sense of what it may cost.
At the same time, a conversation with a Mortgage Advisor can help you understand what financing possibilities may be available—including how the equity you’ve already built in your home could fit into the plan.
You don’t need every cabinet pull selected before having either conversation.
As the scope and cost of the renovation become clearer, you can make more informed decisions about financing. And understanding your financing possibilities may help you make better decisions about the project itself.
Your home equity is the difference between your home’s value and what you still owe on it. But that doesn’t mean all of that equity is necessarily available to borrow.
How much may be available depends on your home, existing mortgage and overall financial picture.
The good news is that you don’t need to calculate that yourself before you start planning. A Mortgage Advisor can help you understand approximately how much equity may be available so you can consider it alongside the scope and cost of the renovation you’re contemplating.
And knowing what’s available is only part of the conversation.
How much you can access and how much it makes sense to use aren’t necessarily the same thing.
Imagine the renovation you’re considering is expected to cost $150,000.
That doesn’t necessarily mean the financing amount should be $150,000.
Maybe you have enough cash to pay for the entire project but don’t want to substantially reduce your savings. You might choose to contribute some cash and finance the rest. Or perhaps maintaining liquidity for reserves, investments or other financial priorities is important to you.
There’s another consideration: renovation budgets can change. A project estimated at $150,000 may not finish at exactly $150,000, which makes it important to think about potential changes before deciding how much cash to contribute and how much to finance.
The goal isn’t necessarily to borrow as much as possible or as little as possible.
It’s to decide how the renovation fits into your larger financial picture.
That’s a much more useful question than simply asking, “How much can I borrow?”
Once you know that some of your equity may be available, the next question is how to access it.
And here’s something many homeowners don’t realize:
Using your home equity doesn’t necessarily mean refinancing your existing mortgage.
That’s particularly important if you’re comfortable with the mortgage you already have. You may be able to leave that first mortgage in place and use separate home equity financing for the renovation.
For a homeowner with a fairly well-defined renovation budget, financing may be structured as one lump sum with a fixed interest rate and predictable monthly payments. Your existing first mortgage remains in place, and the new financing covers the renovation.
That combination can be particularly useful for a substantial project with a reasonably defined cost. You know the amount you’re financing, the interest rate is fixed, and the payment is predictable—all while leaving the existing first mortgage in place.
This type of financing is commonly called a home equity loan. But the name is less important than understanding how it may fit into the larger plan for your renovation.
Renovations don’t always arrive with one perfectly predictable number.
Maybe you’re completing the work in phases. Maybe some decisions haven’t been finalized. Or perhaps you want flexibility to access funds as expenses arise.
A Home Equity Line of Credit (HELOC) is another way homeowners may access equity. Rather than receiving a single lump sum, a HELOC is a revolving line that allows funds to be drawn as needed, subject to its terms. HELOCs typically have variable interest rates, which means the rate and payment can change.
That’s a different structure designed to solve a different financing need.
The useful question isn’t simply “Which one is better?”
It’s “Which structure makes sense for the project I’m planning and my larger financial picture?”
You don’t have to wait until the contractor needs a deposit.
And you don’t need a final invoice before starting the conversation.
If a renovation is something you’re considering, a Mortgage Advisor can help you begin looking at the financial side of the project: the equity you’ve built, your existing mortgage, the amount you may want to finance, your available cash and the monthly payment you’re comfortable adding.
At the same time, your contractor or other renovation professionals can help you develop the scope, timing and realistic cost of the work.
Those two conversations can develop together.
You may discover that preserving more cash makes sense. You may decide to contribute more cash and finance less. You may value the predictability of fixed-rate financing. Or the nature of your project may require more flexibility.
You don’t need to know the financing solution before you have the conversation.
That’s what the conversation is for.
Renovating is just one way the equity you’ve built may support your plans.
Depending on your goals and circumstances, home equity may also become part of the conversation around another home purchase, major expenses, investments or other financial priorities.
But if the home you’re already in is the home you want to stay in, your equity may give you another possibility:
Keep what you love. Change what you don’t.
