8 Best Ways to Finance Major Home Renovations
From minor cosmetic updates to "behind-the-wall" surprises like electrical upgrades, renovation costs can snowball quickly. In Canada, your financing options depend on your credit score, your income, and—most importantly—how much equity you have in your home.
Here are the eight best ways to finance your next major home project.
1. Purchase Plus Improvements Mortgage
If you are currently house-hunting and know the property needs work immediately, this is the most efficient option. A Purchase Plus Improvements mortgage allows you to roll the cost of planned renovations into your initial mortgage.
How it works: You get quotes for the work before closing. The lender approves the amount and adds it to your mortgage.
The Catch: Lenders usually hold back the renovation funds until the work is completed and inspected, meaning you may need some initial cash flow to start the project.
2. Home Equity Line of Credit (HELOC)
A HELOC is one of the most popular tools for homeowners. It’s a revolving line of credit secured by your home, typically offering much lower interest rates than credit cards or personal loans.
The Math: In Canada, you can usually borrow up to 65% of your home’s value through a HELOC, though your total debt (mortgage + HELOC) cannot exceed 80% of the home's appraised value.
Flexibility: You only pay interest on what you use, and you can pay it back on your own schedule.
3. Refinance Your Mortgage
Refinancing involves breaking your current mortgage to create a new one that includes the additional funds needed for your renovation.
Best Timing: This is most beneficial at mortgage renewal time to avoid prepayment penalties.
Stability: Unlike a HELOC, which has a variable rate, refinancing allows you to lock in a set amount at a consistent interest rate, making your monthly payments predictable.
4. Take Out a Second Mortgage
If you don’t want to touch your primary mortgage, a second mortgage allows you to borrow a lump sum against your home’s equity.
Pros: You don't have to pass a "stress test" for a second mortgage, and interest rates are lower than those on credit cards.
Cons: Because the risk to the lender is higher, interest rates are higher than for a first mortgage, and you will have to pay additional closing and appraisal fees.
5. Unsecured Personal Loan or Line of Credit
If you haven't built up much equity yet, you can look into unsecured options through your bank.
The Difference: An unsecured loan provides a lump sum with a fixed repayment schedule. An unsecured line of credit works like a HELOC but isn't tied to your property.
Trade-off: Because there is no collateral (your home isn't on the line), the interest rates will be significantly higher than equity-based options.
6. Pay With Your Credit Card
This is generally not recommended for major projects due to high interest rates (often 19.99% or higher). However, if you are doing a tiny DIY project and can pay the balance off in full at the end of the month, it can be a way to earn loyalty points or cash back.
7. Pay As You Go
If you aren't in a rush, you can tackle your renovation in stages. Save up for the flooring this month, then wait until you’ve saved for the cabinets next month. This is the slowest method, but it is the only way to ensure you never pay a cent in interest.
8. Rely Strictly on Savings
The "gold standard" of financing is using your own cash. It’s the fastest way to get started and ensures you aren’t stuck with debt once the project is finished. Many homeowners choose a "mix" approach—using savings for a portion of the project and financing the rest.
Frequently Asked Questions
Is it better to save or borrow? If the work is cosmetic, saving is best to avoid interest. If the work is urgent (leaky roof, faulty wiring) or will significantly add to the home’s resale value, borrowing at a reasonable rate is often the better move.
How do I handle cost overruns? Renovations rarely go exactly to budget. It is highly recommended to build in a 10–20% contingency fund when deciding how much to borrow.
How do I choose? Before you sign any paperwork, ask yourself:
How much do I really need? (Get contractor quotes first!)
How is my credit? (This determines your interest rate.)
Am I comfortable using my home as collateral? (Secured loans are cheaper but riskier.)
Ready to take the next step? Whether you're looking for a fixer-upper or wondering how your renovations will impact your home's value, I, as a local RE/MAX agent, can help you navigate the market and find the best path forward for your home.
