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Renovation Mortgages. How do they work?

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If you’re looking to renovate your home and add value to it, consider doing it with a mortgage. It may seem like a lot of money to pay off, but you can use your equity in the home as collateral for financing. Homeowners who want to do renovations generally do so knowing their home will increase in value as they work on it.

Purchase plus improvements

This is the most common scenario, where you purchase a home with renovations already planned. The renovation can be added to the mortgage, as long as it does not exceed 10% of the value of your home. It can also be added to loan amount, term of loan and interest rate. The process for this involves going to get quotes for materials and labour, and submitting these to the lender before the mortgage closes so they know how much extra they need to advance. Once the mortgage closes they will advance the funds to pay for the renovation once it is complete. How and when they advance the funds does vary lender to lender so it’s always best to ask your broker for detailed information so you know how to proceed.

dated, old, modern

In order to get the best mortgage for your renovation project, you need to understand the difference between a dated home and a modern one. A dated home is an older house that hasn’t been updated since it was built. It may seem like this would be ideal for those looking for a quick fix on their budget, but there are drawbacks:

  • Because it’s older than most homes today, there will likely be more work that will need to be done aside from cosmetics (furnaces, hot water tanks, plumbing and electrical are a few of the big ticket items that may need to be replaced) when compared with newer construction of similar size and style.
  • You have to also be weary of things like asbestos that can completely alter a budget. Homes built before 1990 can contain asbestos, although pre 1980 is much more likely to have asbestos in the drywall mud or glue for linoleum floor.

Renovation Refinance

Renovations, or additions and improvements to a property including the purchase of new appliances and fixtures, can be used to add value to your home. In some cases this will make it more attractive as an investment or rental property. If you’re refinancing your mortgage, getting a quote for the work you need done first will help you calculate how much equity you want to pull out.


I hope this article has given you a better idea of what types of renovations are possible, and how much it might cost to finance them. If you’re thinking about renovating your home, it’s important to figure out if it will be worth the time and effort before making any decisions on financing.