Home Renovation Financing - 6 Ways to Finance Your Project

No matter when your house was built, at one point or another, it’ll need some work. Renovations are expensive! Hence, homeowners often postpone this sort of project.

So, how can you go about financing a home improvement project efficiently? Between personal savings, government grants, and financial support from relatives, what options do you have to materialize your projects without burying yourself under mounds of debt? This article explores the financing options available, helping you choose the ones that best suit your financial situation and needs.

6 Types of Home Improvement Financing Options

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1- Financial institution financing

Financial institutions are often the first stop for home renovation financing. They offer a myriad of financing options necessary to get your project underway.

Credit Cards

Your credit card can help you pay for materials and tools or finance small-scale jobs. However, this payment method is ill-suited for large-scale renovations. 

Moreover, given that interest rates are often quite high (nearing 20%), you risk struggling to pay back interest rates. Be careful when using credit cards: pay off your monthly balance promptly.

Personal Line of Credit

A personal line of credit is—typically—at least $5,000 in funding, providing some leeway in your budget. This way, there’s no need to seek credit every time; instead, you have a personal line of credit available at all times with flexible monthly payments.

However, although the interest rate is lower than that of credit cards, it still fluctuates and starts accruing as soon as funds are withdrawn. As such, avoid seeing this financing option as a bottomless fund, at the risk of being buried under mounds of debt.

Home Equity Line of Credit

Much like a personal line of credit, a home equity line of credit is secured against your home, which becomes collateral—a guarantee against the money borrowed. It allows for borrowing up to 80% of the value of the house at a lower interest rate than that of a personal line of credit. 

Additional fees may apply if the financial institution in question requests a property appraisal. Much like a personal line of credit, monthly payments are flexible, but interest rates start accruing as soon as funds are withdrawn.

Apply for a Loan

There are several ways to borrow money from a financial institution to finance home improvement projects:

Personal Loan

It’s a fixed amount that’s loaned at a higher interest rate than that of a line of credit yet has a grace period. Payments are generally made through regular installments over a period of one to five years.

Mortgage Acquisition Loan

When buying a home with a mortgage loan, estimated renovation costs can be included in the financing. That way, you can benefit from a real estate loan with a better interest rate most of the time.

Mortgage Refinancing Loan

Mortgage refinancing is a loan for which your home is put up as collateral. You can borrow up to 80% of the property’s value (mortgage included) at a low interest rate. However, property appraisal may be mandated, and any additional fees will be billed to your name.

Weighted-Average Interest Rate

It combines a home improvement loan with a property mortgage. The interest rate will be deducted from it, and you can borrow up to 80% of the property’s value (mortgage included). As such, the loan and mortgage will be paid back together. Property appraisal might be required and notary fees billed to your name. 

Some banks have also implemented financing opportunities for those who are looking to make their homes greener, especially when it comes to energy use. Don’t hesitate to discuss it with your bank to get the best mortgage rate possible.

2- Government financial assistance programs

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Energy and Natural Resources Quebec

• Chauffez vert assists in replacing fossil-fueled heating systems with appliances powered by renewable energy (electricity, solar, wind, geothermal, heat pump). 

• Rénoclimat focuses on home insulation and air tightness, and the replacement of mechanical systems (propane water heat, electronic thermostats).

• Novoclimat serves to build new, energy-efficient homes by a contractor accredited by the program. Energy savings are estimated at 20% for Novoclimat houses.

Société d’habitation du Québec (SHQ)

• RénoRégion was established to help low-income owner-occupants carry out home improvements to fix major defects around their home. This grant can cover up to 95% of the project costs, however, without exceeding $12,000.

• Home adaptation, helping residents adapt their homes to meet the needs of a mobility-impaired dweller.

For more information, check out our article Financial Assistance for Home Retrofits Awarded by the Société d’habitation du Québec (SHQ).

Energy Transition and Énergir (Formerly Gaz Métro)

In partnership with Energy Transition Quebec, Énergir offers its members access to subsidies, covering the costs of purchasing energy-efficient appliances, such as condensation boilers, programmable electronic thermostats, and smart thermostats. Besides the installation of energy-efficient appliances, this subsidy also serves as a way to implement several energy-efficient measures inside the home. 

Éconologis

This renovation financial assistance program was essentially designed for modest-income households and serves to help undertake energy-efficient home improvements. 

Those who seek out this grant benefit from an advisor’s expertise, recommending specific indoor home improvements. Moreover, electronic thermostats can be installed without homeowners having to financially invest. Note that program eligibility is assessed based on household income.

Tax Rebates

Partial GST and QST rebates are offered during the home building, purchasing, and renovation process. If you meet the eligibility requirements, the minimum amount received is 36% for GST and 50% for the QST (not exceeding $6,300 for the GST and $9,975 for the QST).

3- Municipality-offered grants and subsidies

Most municipalities offer different grants and subsidies to alleviate the financial burden brought on by home improvement projects, particularly for energy-saving renovations.

In Montréal, programs like RénoPlex enable homeowners to renovate, update, and replace elements in their homes. There’s also a home adaptation grant designed for independent seniors and mobility-impaired individuals. 

Québec City also provides various home improvement programs, including subsidies for installing residential backflow preventers and financial support for retrofitting buildings in heritage neighbourhoods.

Laval residents may be eligible for a subsidy dedicated to renovating heritage buildings, amounting to 40% of the eligible cost, totalling $12,500. Other subsidies and programs are also available through the city’s website.

Also worth noting is that many cities offer property tax credits for specific renovations. Contact your municipality to learn more about eligibility requirements.

4- Financial support from relatives

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Relatives can also be valuable financial resources, whether providing a loan or, on rare occasions, a no-strings-attached handout. While for some, dealing with family members might seem like the quickest and easiest route compared to financial institutions, it risks getting tricky and might complicate relationships.

However, if you do choose this avenue, get everything in writing (amount loaned or gifted, terms of repayment, interest rate, etc.) and witnessed by another relative or notary for any substantial amount.

5- Strike a payment plan with your contractor

Some contractors may agree to a repayment plan to finance your renovations. Depending on the terms and conditions stipulated in the contract, you can also benefit from an interest-free grace period. When looking to hire a contractor, don’t hesitate to ask them whether they’re open to making an agreement of the sort.

6- Personal savings

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If you’re able to save up enough money, you can finance your home improvements in full. If you come up a bit short, a loan or other financing options detailed in this article can help you round off your funds.

This approach helps reduce the loan amount and interest rates. However, be cautious not to deplete your savings, as you may be left without funds in the event of an emergency.

FAQ About Financing Renovations

Are there financial assistance programs for reroofing in Canada?

Yes, there are many province-specific programs designed specially to help homeowners carry out roof retrofits. 

In Quebec, several programs are dedicated to roof renovations. The Rénoclimat Program offers funding to improve energy efficiency, including roof insulation. Some municipalities also offer specific grants for reroofing purposes. Contact your municipality to learn more about your options.

How do people afford home renos?

Homeowners have access to several financing options for renovations, including:

• Personal savings

• Financing options from financial institutions

• Government grants and subsidies

• Municipal subsidies

• Financial assistance from family

• Payment plan agreement with a contractor

Naturally, you can also combine multiple options to best suit your needs.

What is the best loan for home improvements?

Your options include:

• personal loans, a fixed amount paid through regular installments;

• lines of credit provide more flexibility; and

• mortgage loans enable homeowners to take out a loan against the value of their property at often better interest rates.

Contact your financial institution to determine which option best suits your project and current financial situation.

Can I pay for my renovations in installments?

Yes, as mentioned, some renovation contractors are accustomed to customers establishing repayment plans. These plans may be tailored to fit your budget, with payments spread out over the course of the project or after its completion. However, discuss the repayment terms and have a clear agreement on a payment schedule, including any interest or additional fees that may apply.