The Pros and Cons of Using Home Equity for Renovations

In Canada’s housing market, home equity might be one of the most asked-about terms, and for good reason. It sounds complex. It feels good. But the truth is, home equity is just the value you have built up in your home.

For Ontario homeowners thinking about home renovations, it can open up real possibilities.

But there is a catch. Using it isn’t always simple. There are choices, risks, and different home equity mortgage loans. And not every option works for every home.

We will explain how it all works. This entails both the upsides and downsides, and the right loan options that can bring your renovations to life.

How Does Home Equity Work?

Home equity is the difference between what your home is worth and what you still owe on your mortgage.

Let’s say your home is valued at $800,000 and you still owe $500,000 on your mortgage. This means you have $300,000 in home equity.

This looks like simple math, of course. But it can also be a big deal. Home equity can be built in two main ways:

• First, by paying down your mortgage. Every payment chips away at your loan balance.
• Second, when your home’s value goes up over time. This happens if market prices rise or you have already done some home remodelling.

When Should You Use Equity for Home Renovations?

Equity is used for projects that add real value to the home or fix something important.

Here is when it makes sense:

• You want to gut your outdated kitchen.
• Finish the basement.
• Add a second bathroom.
• Deal with structural repairs like a leaky roof or foundation issues.

In those cases, using equity feels more like an investment. But not every project calls for it.

If you are leaning towards repainting the living room or swapping out countertops, those might not justify borrowing against your home.

Home renovations can be exciting. But smart planning is key. If the project is big and long-term, and you are staying put, tapping into home equity could work well. Just don’t spend big on home remodelling that doesn’t give anything back.

Loan Options to Tap Into Equity

If you have got home equity, the question on your mind would be how to use it. Here are three smart loan options homeowners turn to for renovations.

• Home equity loan: This gives you a one-off large sum of money upfront. You pay it back over time at a fixed rate. Great for big home renovations where you know the actual cost.
• Home equity line of credit (HELOC): A HELOC works like a credit card tied to your equity. You borrow only what you need, when you need it. Home equity loan rates are usually variable. An equity line of credit is perfect for long projects or continuous upgrades, mostly seasonal.
• Refinance with cash-out: This entails replacing your mortgage with a new one and taking out extra cash from your home equity. It works best if rates are lower than what you are already paying.

Home equity loan rates vary by product. So do the rules. So, before jumping in, compare what fits your home renovations best.

The Pros: Why Use Equity for Home Renovations

Here are the core benefits of why home equity for renovations makes sense:

• You can get lower interest rates: Compared to credit cards or personal loans, home equity mortgage loans usually come with lower rates. This means smaller monthly payments and more manageable debt. Over time, this can save you thousands, especially on bigger projects.
• It can boost your home’s value: Large home remodelling jobs like building a new bathroom or kitchen upgrades can increase your home’s resale value. You are investing in your home and potentially getting a strong return. The home renovations also improve your day-to-day living.
• Multiple loan options to choose from: If you want a one-time lump sum, a home equity loan might work best. For flexible access to funds as you go, a home equity line of credit gives you that freedom. Each of these loan options can be structured to match your renovation timeline and budget.
• There may be tax advantages: Funds used specifically for home renovations might qualify for tax deductions on interest. While it does not happen all the time, it is important to consult a reliable broker who knows Ontario’s housing market.

The Cons: What to Watch Out For?

Home renovations can bring long-term value, but only if you borrow wisely. Here are the risks to know about:

• You are borrowing against your home: Your house is the collateral. If you miss a payment on a home equity loan, you could face foreclosure. This also applies to HELOC.
• Interest rates can change: With an equity line of credit, rates are usually variable. This means home equity loan rates, which influence your monthly payments, can go up over time. You might not be ready for those increases, as it could hurt your finances.
• You might stay in debt longer than planned: Using loan options tied to equity feels easy, but it is still debt. Some people make only minimum payments or keep extending their terms.
• Home renovations usually go over budget: Unexpected issues like electrical problems or permit delays can pop up. If you borrow too little, you may end up using expensive credit to finish the job.

Canadalend Can Support Your Home Renovation Goals

Inflation in Ontario has changed the way people think. Home renovations that felt simple, like fixing up a kitchen or finishing a basement, now feel heavy. Expensive, out of reach, but not impossible.

If you have built up home equity, you might be sitting on a solution. However, the last thing you want is to borrow more than you can handle or choose the wrong type of home equity loan.

This is why a mortgage broker is needed. Not just any type, but a reliable and local expert like Canadalend.

Our team does not push one product. Instead, we compare many and walk you through loan options. This includes HELOCs, home equity mortgage loans, and ways you can refinance without stress.

Reach out to Canadalend today at 1-844-586-0710 or apply online to explore the smartest way to fund your home renovations. Your home deserves it. So do you.