27 May

9 TIPS TO IMPROVE YOUR CREDIT SCORE

General

Posted by: Mike Hattim

An important rule of thumb to remember regarding credit is that YOU are your only advocate for your credit. YOU are the only one that can improve your credit. YOU are the only one that can manage any errors on your credit. YOU are the only one who can determine who pulls and when your credit is looked at.

Frequently, when we move forward with a client’s application for mortgage preapproval, there are errors on the individual’s credit report (some statistics say 80%). It is a MUST that those errors are corrected immediately. Calling the credit bureau company to get those errors corrected are the responsibility of the consumer. The credit bureau company will assist you to correct those errors by providing needed information such as telephone numbers, account numbers, etc to the consumer who is questioning their report. This goes a long way in improving credit. If there are errors, they WILL negatively affect your credit score.

Improve your credit score by….

1. Paying your bills on time. Even if it is a minimum payment amount, paying bills on time is probably the most important aspect of keeping your credit healthy. A late payment ALWAYS significantly lowers your credit score.

2. Try to keep your credit card balances within 30% of the maximum allowable credit. Banks always consider the amount of debt you have. If you can’t manage your credit card debt, the bank will doubt that you can manage mortgage debt.

3. Don’t apply for credit on a frequent basis. Some stores market their credit card applications every time you go through the cashier’s check out. Keep in mind that marketing is a big part of credit and the high interest rates that you will pay on remaining balances will be far more negative than the 3% cashback that is being offered.

4. Don’t close old credit accounts. Keep the older credit around. The lender will always look to see how old and established your credit is. The older, the better.

5. Don’t pull your credit too often. Although credit pulls for mortgages, automobiles, and student loans is looked at differently than credit cards, it is important to keep credit pulls to a minimum. The more applications to credit cards, the lower your credit bureau score goes.

6. If you are going to make a purchase that will require more credit, it is better to call the credit card company and increase your credit limit than make a purchase that goes over your credit limit. If you go over your credit limit, this will significantly affect your credit score to the negative.

7. If you enter into a dispute with a company, it is better to make a payment and close the account than close the account forcing the company to go to collections. Be very careful when online shopping as it is very difficult to reconcile a dispute when there is little physical presence. Make sure you know who you are shopping from when making purchases online.

8. Don’t buy too much on credit at one time. If you go out and buy a car, buy a cellphone and then apply for a personal loan, the credit bureau sees this as financial instability and your score will be lowered. Even getting a preapproval from a bank will lower your score.

9. Make sure your credit bureau has no mistakes or continuing collections. When you call in to make sure your credit score is accurate and something comes up such as collections for a cable company, make sure to get the contact information from the credit bureau company and call the collections to settle the payment as soon as possible. As well, get the collections company to call the credit bureau to mark the account as “paid” and even remove the notification entirely.

25 May

LIFE HAPPENS, LET YOUR HOME HELP

General

Posted by: Mike Hattim

Sometimes “life happens”, and when it does, your home can be your savior if you have accrued some equity in it. Maybe you’ve been out of work, run up your credit cards and driven your credit rating into the ground. Perhaps, you’ve decided to leave the job you hate and venture out into the world of owning your own business. Whatever it may be, the equity in your home can help.

I recently helped a client who had maxed out her high interest credit cards due to not being able to work for a couple of years, and the credit card debt had lowered her credit score substantially. She was now back to work as a self employed consultant earning a good income, but the $1,000 monthly interest payments she was paying was seriously eating at her cash flow and not reducing the principal she owed. Dead money!!

Luckily for her, she had great equity in her condo, so I was able to provide her with an Equity Take Out Mortgage. The mortgage lender I chose was able to loan her money based on the strength of her property and the low loan to value of the mortgage based on her equity, NOT her income or credit score.

Here are the numbers:

Mortgage Amount $75,000

Rate: 4.75% (due to low credit score and equity take out)

Monthly Payments: $425.59

Savings per month: $574.41

In this case, my client was able to pay off her credit card debt and had a fair amount of money left over to invest in her business and her future.

In the end, she was very happy to be able to get her finances and business back on track, and start her life anew!

By working with me, a licensed mortgage broker who has access to a variety of lenders and products, we were easily able to find a great solution to a “life happens” scenario.

If you would like to learn more about how the equity in your home can help you, contact your nearest Dominion Lending Centres mortgage professional.

 
20 May

USE OF RRSPS FOR THE DOWN PAYMENT ON A PROPERTY

General

Posted by: Mike Hattim

It is well known that when you are a First Time Home Buyer you can use up to $25,000 from your RRSP without paying any personal taxes. However, you will have to repay any amount withdrawn from your RRSP for down payment of a home purchase.

Who is a First Time Home Buyer?

Normally, you have to be a first-home buyer to withdraw funds from your RRSPs to buy or build a qualifying home.

You are considered a first-time home buyer if, in the four year period, you did not live in a home that you or your current spouse or common-law partner owned. This condition is particularly important because even if the house where you live is not in your name but your spouse or common law partner, you don’t qualify for this benefit.

Even if you or your spouse or common-law partner has previously owned a home, you may still be considered a first-time home buyer.

The four-year period:

Begins on January 1 of the fourth year before the year you withdraw funds; and

Ends 31 days before the date you withdraw the funds.

Example:

If you withdraw funds on March 31, 2016, the four-year period begins on January 1, 2012 and ends on February 28, 2016.

If you have a spouse or common-law partner, it is possible that only one of you is a first-time home buyer.

RRSP withdrawal conditions

* You have to be a resident of Canada at the time of the withdrawal.

* You have to receive or be considered to have received, all withdrawals in the same calendar year.

* You cannot withdraw more than $25,000.

* Only the person who is entitled to receive payments from the RRSP can withdraw funds from an RRSP. You can withdraw funds from more than one RRSP as long as you are the owner of each RRSP. Your RRSP issuer will not withhold tax on withdraw amounts of $25,000 or less.

* Normally, you will not be allowed to withdraw funds from a locked-in RRSP or a group RRSP.

* Your RRSP contributions must stay in the RRSP for at least 90 days before you can withdraw them under the HBP. If this is not the case, the contributions may not be deductible for any year.

When do you I have to repay the amount withdrawn?

Generally, you have up to 15 years to repay to your RRSP(s) the amount you withdrew from them for you down payment. However, you can repay the full amount into your RRSP at any time.

Example:

If you withdrew $15,000 from your RRSPs for the down payment of your house you will have to repay to your RRSPs $1,000 per year for the next 15 years.

For more information contact contact your Dominion Lending mortgage professional or visit www.cra-arg.gc.ca.

 
12 May

HOW TO PAY OFF DEBT FASTER – 25 SECRET TIPS YOUR BANKER DOESN’T WANT YOU TO KNOW

General

Posted by: Mike Hattim

1. Make a double mortgage payment whenever you can. Doing this once a year can shave over 4 years off the mortgage! Sometimes you can skip a payment later on too…if you really, really need to. Try not to. If your payment is $2,000 a month, four years of no payments is $96,000!!

2. Increase frequency of payment. For Example going from monthly to bi-weekly accelerated can shave over three years off your mortgage! $2,000, three years of no payments is $72,000!!

3. Increase your payment. For example a one-time 10% increase can shave 4 years off the mortgage. That’s $96,000! Imagine if you bumped the payment 10% every year from the get go!!! You would be mortgage free in 13 years! Start to finish! Can’t do it? How about 5% every year….you would be mortgage free in 18 years! How about increasing the payment by the amount of your annual raise?

4. Lump sum payments…same idea…mortgage is gone way faster! Even just one payment a year equivalent to 1 monthly payment will give you similar results as #2 above! How about using your annual work bonus?

5. Renegotiate whenever rates drop to save interest and pay mortgage faster! Generally a good idea however *Caution* get independent professional advice (a cost benefit analysis) to make sure it makes sense for you at that time. I can help. A 1% reduction on a $300,000 mortgage will save $250 a month…times 5 years…that’s $15,000!!

6. Keep your credit rating high for best rate. Always pay on time. Never let payments slip past their due date. Always keep balances low in relation to credit limits on credit cards, lines of credit, etc. 50% or less is best even if you pay the balances in full every month. What generally reports to the credit bureau is the statement balance each month. So if your credit limit is $3000 and you are running $3000 a month through the card each month (to collect all those points you never spend or can’t use in blackout periods) and paying in full, it will look like you are maxing out your credit limit and your credit score will drop accordingly.

7. Increase your mortgage! Yeah I know sounds backwards! Do it to roll in your credit cards, line of credit, car loan etc for a better rate and a set payment plan. Oh you say you don’t want to extend the repayment period of that stuff by rolling it into your mortgage or you have a low or promo rate credit card (those never end well) I agree! Then keep the total payment amount the same but pay it in one neat monthly payment to the increased mortgage.

8. Make an RRSP contribution and use the refund to pay down your mortgage.

9. Go variable rate with your mortgage but keep payments as if fixed rate. Variable rates usually win out over fixed rates. By paying a higher payment you will pay off the mortgage faster. It’s also a buffer in case the rate rises above the fixed rate for short periods of time. *Caution* variable rates are not for everyone. Get independent professional advice to find out what is best for you. I can help!

10. Take your mortgage with you when you change properties to avoid penalty or higher rate on a new mortgage. This is called “porting”. Make sure that your mortgage has this feature. It is not widely known and could save you a ton of dough.

11. Set up auto savings every paycheque, even $10, when it reaches the amount of one mortgage payment, apply it to the mortgage. This concept goes nicely with #4 above.

12. Unhook from the money drip…stop paying with your fancy points credit or debit card. Way too easy to overspend! Go old school, go off the grid…PAY CASH, it works!

13. Don’t ever buy on layaway, you know, six months don’t pay schemes. You think…No problem I’ll just pay it in six months, it will be okay. Yeah right!

14. Downsize your house. Two good friends and clients of mine, having followed many of the tips here, are in great shape except they have a six bedroom house! Two people, six bed house – go figure! They are nearly debt free so no biggy, but can you say the same? Circumstances change, make the adjustments along the way!

15. Don’t want to move? Convert the basement/rooms to rental and use the income to pay down debt.

16. Convert your mortgage to tax deductible. If you are self-employed, own rental property or have investments, this is likely possible. I won’t go into details here, just ask me how.

17. Have a payment priority.

18. Pay off the highest interest rate first.

19. If you have tax deductible loans, pay them off last, slowest. Pay the non-tax deductible loans first and fastest.

20. Pay off ugly debt first. Stuff like credit card purchases.

21. Payoff bad debt next. Stuff like car loans, boat loans. Things that depreciate in value.

22. Pay off good debt (or shall I say “not so bad debt”) last. Stuff like mortgages, investment loans. Things that hopefully appreciate in value.

23. Buying a car? Finance it if you have to, don’t lease! *Exception* If you are self-employed it might make sense.

24. You have $20,000 in a secret bank account for a rainy day fund and $20,000 owing on a line of credit. Seriously? The bank account is paying you next to nothing (which is taxable income to boot) and the line of credit rate is way higher (and not tax deductible). You know what to do. You can keep the line of credit open and on standby for rainy day funds. Make it the secret line of credit that you have but never use.

25. Give your Banker more money. No really. Keep enough in your chequing account to meet the minimum requirement to waive your service charges. My bank charges $10 a month for 25 transactions and nothing, zero, zilch, zip if I keep $2,500 in the account. Let’s see $10 x 12 is $120 a year to pay off debt. I’d have to earn 5% with the $2,500 in my savings account to come out ahead. No brainer here. Oh yeah, if you need more than 25 transactions a month…see #12 above.

26. #26? BONUS TIP and MOST IMPORTANT. Let’s face it, you’re not the Government and you’re not a Bank, you can’t run deficits forever and you won’t get a bailout….stop procrastinating already! See 1 through 24 above and take action now!

Sidenote: *Caution* beware of some too good to be true ultra-low rate mortgages. These “no frills” mortgages are often loaded with restrictions like pre-payment limitations, fully-closed terms, stripped-out features, or unusual penalties. You really need to compare product to product. If you’re not looking at what you’re giving up, you may regret it in the future. This alone could prevent you from taking advantage of tips #1, 2, 3, 4, 5, 7, 8, 9, 10, 14, 16 and 22!

11 May

RENT TO OWN – 6 REASONS YOU NEED TO READ THIS

General

Posted by: Mike Hattim

Rent-to-Own, Lease to Own, R2O. They may seem like good options, but watch out for these pitfalls. They are a good program as long as you have a mortgage planner ensuring you are following a plan to succeed.

Rent to Own…what you NEED to know. My guess is you might check this option out if you:
1. Have NO credit.
2. Have credit challenges such as a bankruptcy or debt repayment plan.
3. You’re self-employed or on disability with little income to “declare”.
All valid reasons and you’re not alone. There are lots of people each year that contact me with these exact issues.

Rent-to-own or Lease-to-own is a great program for SOME people! The program allows you to buy a home today without having to meet the typical qualifications required by your banks. There is nothing cheap about these programs either.

The Pitfalls

There is NO guarantee that you will qualify for a mortgage at the end of your term; hence you may lose your deposit.

  1. You are buying a home based on an estimated future value, so you could be paying an over-inflated price. What happens if your house de-values over the term of your R20 contract?
  2. There can be (if the mortgage becomes “private”) hefty fees involved.
  3. You DO need an initial deposit (usually 5-10% of the value of the home).
  4. Terms are usually 1-3 years, so if you’re credit challenged, you may not qualify for a mortgage at the end of your contract.
  5. If certain documents are NOT completed up front (for lender’s future use), you won’t get the mortgage. Certain items such as an appraisal up-front, option purchase agreement, market rent reports and such must be completed and dated in the beginning.
  6. Only a handful of lenders will mortgage these.

When it comes time to finance your rent-to-own, you can waste a lot of time dealing with banks and lenders that don’t deal with Rent-to-Own contracts. Always connect with a mortgage broker who deals mostly with investors who thoroughly understands Rent-to-Own and, most importantly, which lenders will finance Rent-to-Own.

Remember Dominion Lending Centres have over 200 different mortgage programs that are likely BETTER, SAFER and give MORE OPTIONS than a Rent-to-Own. Banks are not your one-stop-shop for answering your questions.

Buyer Beware!

You will see many websites out there with Realtors advertising they have this program, or “middlemen” that also have these sites saying how easy it is. Remember “middlemen” and Real Estate people are sales people. They may NOT be licensed mortgage experts that specialize in credit repair or mortgage alternatives. They are there to SELL you a house. Without proper and continual guidance from an experienced, licensed mortgage professional you risk losing your deal at the end.

 
10 May

THE SELF-EMPLOYED DILEMMA

General

Posted by: Mike Hattim

You’re likely asking yourself, what is the dilemma that self-employed workers face? Well, with more and more Canadians joining the ranks of the self-employment every year, one has to ask themselves how they are going to tackle the age old question, how much does one write off vs how much income does one claim on their taxes. We all want to earn as much money as possible and pay as little income tax as required.

This was my train of thought until the topic of ‘paying taxes’ was brought to my attention by a friend that’s an accountant. As he said, paying income tax isn’t such a horrible thing, in fact it’s a necessity which provides for our infrastructure and without it the ‘world’ we know would be drastically different. Here was the response from him after I re-posted a reference to INCOME TAX RELIEF DAY that I saw on social media.

“I would actually look at it more positively and say that I/we spent this money to live in a great country, province and municipality and it’s worth every penny in taxes spent. I will guarantee you there are billions of people on this planet that would switch positions with us in a second and remember this so called date (INCOME TAX RELIEF DAY) is based on the average Canadian family income of $45,000 and is based on all taxes including not just income taxes, but property tax, sales taxes, health taxes, fuel taxes and much more. So technically not all of it is going to Canada Revenue Agency (CRA). Some of it is going to municipal and Metro Vancouver. For more information go to the Fraser Institute website https://www.fraserinstitute.org/research-news/display.aspx?id=22954. ”

After reading over this message, it got me thinking about how some self-employed people report their taxes and the effect that it has on their chances of qualifying for a mortgage. Besides the duty to provide to our country, we all have a personal desire to provide as much as possible for our family. It’s a so-called ‘tug-of-war’ of who gets your money and how much of it. Here’s where the dilemma gets complicated if you want to borrow money from a lender to purchase residential real estate.

The federal Government of Canada regulates the CRA as well as the lending criteria and policies followed by ALL the ‘A’ lenders. ‘A’ lenders are our chartered banks and non-bank or monoline/investment lender. We also have credit unions that are provincially regulated but follow the CMHC lending criteria, which is federal. Having more ‘cash’ in your pocket actually allows you to borrow less. Showing more income claimed, which requires you to pay more tax allows you to borrow more money if desired. ‘A’ Lenders assess their risk management for lending money to borrowers on historical earning and in this case, if one is self-employed then they require a 2 year average based on T1 Generals or in some cases Notice of Assessments (NOA).

It’s a CATCH 22 and you (and your qualified accountant) need to decide which path you’re going to follow; write off maximum expenses and claim ‘little’ income or claim a ‘healthy’ income and pay more income. Neither is right or wrong.

Upon getting the urge to buy residential real estate a detailed conversation on how ‘your income’ is structured should be had with their Mortgage Expert and Certified General Accountant. Once you have chosen which style of accounting your business will adopt, you just have to be prepared to follow the lending guidelines. Plus, it’s really not that bad either way.

Let’s face it, everyone wants the lowest rate possible when it comes to their mortgage. As a Mortgage Expert, it’s something that I seek for every client. But not all clients are eligible for the lowest rate for a number of different reasons. Two main reasons are because of credit blemishes and, of course, lack of income reported.

BUSINESS CASE

The following is a fictitious scenario that represents a self-employed person that writes down expenses in order to minimize CRA income tax.

Jane is a business owner in Vancouver. She has a modest business that is experiencing growth year after year. Jane enjoys the many perks of being a business owner, especially the tax breaks that come along with it!  Since Jane is able to work with her certified accountant, and considerably write down her income, she often saves thousands of dollars a year on taxes.

Jane would like to purchase a new home. She has a 20% down payment to place on a home, and knows that she grosses more than $100,000 per year in her business. However, since she currently writes down her income to $20,000 per year, her Mortgage Expert has just informed her that she will need to state her  income with a ‘Non-Prime’ or ‘B’ lender for approval.

Now if Jane claimed $100,000 per year for the last 2 years, she may qualify for the best rate out there from an ‘A’ lender. However, let’s look at what that really means:

Income claimed  $100,000/year  $20,000/year
Taxes paid  $25,060/year  $1,761/year

Jane has saved $23,299 per year because of the tax laws the government has legislated for self-employed business owners. Now let’s compare the interest on a ‘typical’ verified-income loan, and a ‘non-prime’ stated-income loan.

Loan Type ‘A’ ‘B’
Mortgage  $200,000  $200,000
Rate  2.69%  4.50%
Term  1 year  1 year
Interest per Term  $5,281  $8,826

** For ease of comparison to BC yearly tax rate– 1 year term has been used. Rates are approximations for example purposes.**
Jane is paying $3,545 more in interest per year, but her income tax savings are $23,299 per year.  She is actually saving $19,754 per year more than the typical ‘verified-income’ employee that was able to receive a mortgage interest rate of 2.69%.

With all entrepreneurs there is one thing in common – they are all savvy and driven to succeed, or fail, on their own terms.

It takes an extreme amount of hard work to get a business from the infancy stage to a self-sufficient entity that produces a constant and steady flow of revenue. Business owners all want to save money while at the same time earning and establishing a presence in their chosen space. Business financials are all structured differently and, depending on how one chooses to operate, will dictate how they can proceed once it’s time to seek residential real estate financing.

If you are self-employed, make sure to consult with us at Dominion Lending Centres to find out how your mortgage can be tailored. Every mortgage scenario is completely different from the next, so make sure yours fits correctly and you are informed before you start the financing process.

9 May

BUILDING A NEW HOME? COMPLETION VS. DRAW MORTGAGES

General

Posted by: Mike Hattim

If you are considering building a new home, then you need to be educated on the difference between draw and completion mortgages. When you meet with a builder, there is tons of terminology and information you should be aware of so you are properly covered.

Completion mortgage means that the builder does not expect any funds until you take possession of your new home. Before the building process begins, you will have to go to your mortgage professional to get your application verified for the build to start. The benefits of this option are that you don’t have to put down any payments before you take possession, you can add upgrades to the mortgage, and the lender doesn’t require all final information from you until 30 days before you take possession. During this build process you will want to take extra care of your finances to ensure nothing changes, which could put your initial approval in jeopardy. Any changes that could possibly change your financial position and your credit should be discussed with your mortgage professional. This can include things like switching jobs, buying a car, and taking out any new loan.

A draw mortgage is preferred by home builders because it allows them to receive portions of funds during predetermined stages of the build process. To obtain a draw mortgage, the beginning process is the same and you will have to go to your lender to be verified for the build to begin. The benefits of this option are that the builder is able to manage their cash flow, inspectors are sent to verify stages of development are met, and funds sent to the builder are handled through a lawyer. There are some extra costs associated with this option though. Inspections will incur a cost upon each stage met and interest payments may be incurred as well. You also do not have the option to add upgrades throughout the build process with a draw mortgage as the first advance sets the loan in stone.

As always, if you would like to discuss draw and completion mortgages in preparation for your new build contact us at Dominion Lending Centres! We are happy to help you figure out your financial future.

 
6 May

5 COMMON MYTHS ABOUT CREDIT SCORES

General

Posted by: Mike Hattim

Because the top secret formula has never been released there are common myths that are floating around about the ones credit score, here are the top 5.

1. TOO MANY CREDIT CARDS WILL HURT MY CREDIT SCORE

Actually, cancelling healthy active cards or accounts hurts more as all of the payment history is lost along with the type of credit granted. The average Canadian has 10 credit sources, having more does not hurt as long as you pay on-time. Along with paying on-time you should observe the rule of maintaining a balance at no more than 75% of the limit, but less is best. Applying for new credit every week will lower your score more.

2. USING CREDIT TO BUILD A CREDIT SCORE

Remember to keep your balances low and manageable. The credit bureau only receives reports regarding your balances and payments. Making your payments on-time builds your credit history strength and score.

3. MY UTILITIES AND INTERNET ARE PAID ON-TIME EVERY MONTH

These providers only check your credit to determine creditworthiness. They don’t report your payment history to the bureau. On the flipside, they only report when you DON’T pay. The other organizations that only report upon default are municipalities and ICBC. Pay your traffic tickets and bylaw infractions.

4. CHECKING MY SCORE WILL DECREASE IT

There are two types of inquiries, soft and hard. A soft inquiry occurs when you pull your own credit report. Credit card companies also pull soft inquiries when marketing pre-approval offers. A hard inquiry happens when submitting a loan or credit card application. A hard inquiry is one that is triggered by the applicant. Soft inquires do not affect the credit score. A consumer can pull their own credit score as many times as they wish without repercussions. Hard inquires affect the score slightly. These inquires are included in the calculation done for credit scoring. Recording the number of inquires a consumer has on the credit report allows potential lenders to see how often a consumer has applied for new credit. This can be a precursor to someone facing credit difficulty.

Too many inquiries could mean that a consumer is deeply in debt and is looking for loans or new credit cards to bail themselves out. Another reason for recording inquires is identity theft. Hard inquires not made by you could possibly be an identity thief opening accounts in your name. Inquires are required to remain on the credit report for at least a year. Hard inquires remain on the report for two years. Soft inquires only appear on the report that you request from the credit bureaus and will not be visible to potential creditors. Hard inquires appear on all credit reports. All inquires disappear from the report after two years. Only individuals with a specific business purpose can check your score. Creditors, lenders, employers and landlords are some examples of approved business people. The inquiry only appears on the credit report that was checked.

5. THERE IS NOTHING I CAN DO ONCE A PAYMENT IS LATE

Creditors are always willing to work with you if there is a late payment. If notified in a timely manner a late payment can be easily removed, just don’t make a habit of it. Some is better than none.

 
3 May

HOME RENOVATIONS: REALITY VS. TELEVISION

General

Posted by: Mike Hattim

Home renovation shows are very popular today and are one of our favorite shows to watch. These shows are not only entertaining but tend to lead you to think how easy and quickly is to renovate your home. And we know that viewers enjoy the shows more when they are filmed in Canada as you recognize certain landmarks or streets which you see often when you watch shows like “Love it or List it Vancouver” and “Game of Homes”. However, the television shows are not realistic, highly edited and can mislead people on the renovation process.

Despite this we have become more knowledgeable about design and we definitely want the latest interior finishes and stylish open interiors that we see on television shows. Having said that, homeowners really need to understand what all the important factors should be considered when thinking a home renovation.

Financing:

Most home renovations shows do not talk about the financing aspect of the renovation. Before you commit to a renovation project, meet with a Mortgage Expert at Dominion Lending Centres to help you assess your financial situation. Every person’s financial needs and options are unique. When asked, most people say they are financing their renovation with a line of credit. While you are only required to make payments on the interest only, many people are under the impression that they can manage paying the interest and go ahead with the renovations. The danger with using this type of financing is that eventually the principal has to be paid and you end up paying huge interest costs.

A HELOC “home equity line of credit” will give you a lower interest rate… if you currently have one. If you don’t, you will need to have at least 35% of equity in your home to qualify for one (based on the current mortgage rules by the Bank Act). Currently, you can refinance up to 80% of the value of your home for a mortgage based on the appraised value. With today’s historical low interest rates, you will end up paying a higher interest rate on a line of credit or HELOC, and you are unlikely to pay down the principal compared to a lower interest rate with a closed mortgage where you pay principal and interest, saving you thousands in interest. Another thing to consider if you are unable to pay off the debt quickly is that you might be better off to refinance your mortgage. It might be more beneficial to get a one to five year locked mortgage below 3 per cent by saving interest up front and using your lender’s pre-payment privileges. If you currently have a fixed rate mortgage, find out what would be your penalty for paying it out early, it might still be worth it to refinance.

The budget:

On television, the designer has $80,000 to renovate an entire main floor including the kitchen and finish the downstairs basement. The question is – are those numbers realistic? The reality is that we, as viewers, are not aware what has been factored into those numbers by the television producers such as design fees, permits, labour, material costs, promotional giveaways, etc.

In order to have a realistic budget for your renovation, do research before you commit. Some people get set in a specific number set in their mind without knowing what is involved in the total scope of the renovation. It is critical in this step to work with a professional renovator as it will reduce surprises. Homeowners need to take responsibility for the renovator they select and for doing their homework. As a general rule, if the price is too good to be true, it probably is. So don’t automatically go for the lowest price.

A professional renovator will work with you to create a detailed budget and timeline for your project so you know what to expect. Once you start selecting materials it is a good idea to take the budget with you to ensure you stay within your budget. There are times that homeowners run out of money midway through the project because they made too many changes along the way or ended up selecting more expensive materials.

Timeline:

On television, renovations are completed within a few short weeks. The homeowners come in and are mesmerized by the transformation. The reality is that sometimes it can take up to eight weeks just for the kitchen cabinets to get built. Before you start your renovation, prepare a timeline with a renovator so you know what to expect.

By doing this, you will have an exact idea how long it will take to do the tasks and therefore plan accordingly. Also, it’s important to remember that quality, professional renovators aren’t necessarily available right away. Some are booked months in advance, depending on the project. In order to stay on track, materials have to be bought ahead of time and certain items could be out of stock. It might take additional time to get them or in some cases replace them. It is important to remember that even fast projects still take a few months, while bigger projects can take up to a year to complete. Therefore, you need to be prepared.

Design and planning:

On most of the renovation shows you have the interior designer come into the home with their assistants and an iPad and start moving walls and design the new space within minutes without consulting the clients. Most clients are not going to allow the designer take free reins without their input.

In real life, renovations can be boring compared to television. The reason is that there is no excitement because every step of the process is well planned. When it comes to structural changes in the home, such as moving walls, doors, windows or adding additions a structural engineer may be required in order to obtain a permits. A renovator needs to plan for these type of engineering costs and time delays in order to complete the project.

Summary, when you do your own renovations it may not have all the excitement that you have seen on the television shows but we do know this. When you take into consideration the above factors, you will be happy with the end result. One, which despite the time, effort and money, you will be proud to come home to.