Refinancing for Home Improvement: It’s pros and cons

Refinance Calculator How Much Can You Save Mortgage Payment

How refinancing can help modify your house

Basically refinancing your mortgaged home denotes the pay off, of loan and its replacement by another loan. There may be many uses for refinancing such as taking advantage of LIRs (lower interest rates) utilizing the huge equity of your home to buy something of high value, or to allow massive renovations to your house in order to turn it into a dream home.

Broadly speaking refinancing should not be undertaken for small projects such as putting up a spare window or replacing a warped door or covering the gate with a fresh coat of paint but for bigger projects. These may include putting up a sunroom near the front garden or creating a spare bedroom or completely overhauling your house. This would have the dual purpose of not only allowing your house to look better and be a more comfortable for you and your family but it would also greatly appreciate the overall value of your property.

Such refinancing may allow the homeowner a substantial amount of funds for large scale home improvement projects.  Once the prospective home owner has been declared to be eligible for refinancing by the financial institution, (this outcome may be dependent on his credit history) they may potentially be able to refinance a sum of money that may even be greater than the original mortgage amount they had acquired initially. This excess liquid cash may then be utilized for any costly home improvement project.

To get the most value for the funds you have acquired through refinancing, it is advisable to go for only those renovations to your house that increases the overall value of the property.  Since not every home improvement plan has the potential to increase the value of your property so choose carefully as to what works best for you. (Bathroom, kitchen and sunroom upgrades are generally considered very popular in Canada these days)

Important points to consider before availing the refinancing option

However, the refinancing option for major home improvement upgrades should be undertaken only after careful deliberation due to a variety of reasons:


  1. If you have utilized a ‘cash back’ option in addition to your refinance, your cumulative debt may actually increase and in the long run you just might end up paying markedly higher monthly repayments.
  2. You should also keep in mind that home renovations are no guarantee that your property value might increase and once you have renovated your house you would be selling it at a profit and moreover, will also be able to pay off all your debts.
  3. The real estate market tends to be mercurial and subject to change with Canada being no exception to the rule. Should property prices register a steep decline once you have availed the refinance facility, you would be paying off more then you could earn from selling your home
  4. It pulls equity out of your home, thus effectively eroding your investment.


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