Budgeting a home renovation
When it comes to home renovations, I think The Wealthy Barber, by David Chilton, said it best – the four most expensive words uttered are: “While we’re at it.”
Anyone who’s been through a major remodeling or repair project knows what he’s talking about. In an era of low-interest rates, easy money and endless HGTV, it’s all too easy to blow the budget on fancy add-ons like heated tiles, granite countertops and pricey light fixtures. I’m living this experience right now – after a decade of looking at the same ugly tiles, we’re finally renovating our kitchen and bathroom. Even though work hasn’t started, we’re working with an architect to balance our budget and determining the reality of what needs to be done. There’s a world of possibilities out there, from fancy finishes to high-end cabinetry, but we want to keep the budget in check. If you’re looking to do the same, there are a few important things to sort out before you even think about taking down a wall.
What’s your budget?
A budget can go out the window when you’re faced what kind of fridge, tub or tile you want to look at for the next 15 years.
Start by making a firm budget that you can afford – and don’t be afraid to scale back if you see costs creeping up.
Do you have a buffer?
Sticking to a budget is easier said than done when you’re dealing with an old house – our place just turned 100 and, at some point in the last century, it was inhabited by a DIYer with more vision than skill. You never know what’s behind the walls – so we’ve built in a healthy cushion in case of plumbing or wiring issues. Set aside 20 per cent of the budget for unexpected expenses.
Is it worth it?
Not all renovations add value to your home; think about which projects will give you the most bang for your buck. According to the Appraisal Institute of Canada, high-traffic areas such as your kitchen and bathroom are good places to focus. But changes there don’t have to cost a bundle. Cheap fixes like fresh paint, modern light fixtures or refinished cabinets can cut costs and add to your home’s value.
How will you pay for it?
While it would be great to pay cash for home renovation work, many of us take on debt to get the job done. Options include refinancing your mortgage (you can borrow up to 80 per cent of the appraised value of your home, minus the amount left to pay on your first mortgage), a home equity line of credit (which lets you borrow 65 per cent of your home’s appraised value), or a second mortgage (which allows you to borrow up to 80 per cent of your home’s appraised value minus the amount left to pay on your first mortgage). Some lenders also let you borrow against amounts you have prepaid to pay your mortgage off faster.
Edited on 25 October 2017