3 Reasons to Look at Your Debt Before You RenovateMay 12, 2018
Have rising interest rates increased your debt payments? Are you paying more money out each month to your variable mortgage? For families who bought their homes during a real estate peak, only to find their home may not be worth as much today, the high mortgage rates and payments may be causing some stress. Oakville, along with most of the GTA have seen a decline in home sales and property values, partially due to tighter mortgage rules. Families who plan to renovate their homes may also face these financial challenges, which is why it’s important to take your current debts into consideration before planning any major remodeling.
How comfortable are you with your debt load?
After a long winter, summer is the time to soak up the sun and tackle outdoor projects. Summer is also the time when budgets tend to fall to the wayside with going out more, day camps and activities for the kids, etc. This can be problematic, especially when taking on a costly endeavor such as a home renovation. That’s why you should start asking yourself these questions now, before getting caught up in all those reno dreams:
- Are you projecting higher mortgage payments this year or next year? How would this affect your ability to cover all your other financial responsibilities?
- Are you managing your existing debt? Have your interest payments increased on your LOC or HELOC?
- Are you already having a hard time covering increased living costs?
- How might a renovation affect your financial health? Will you delay important goals such as paying off debt, saving for emergencies or saving for retirement to improve your home?
3 things to consider before you borrow
Last year, due to peak home prices, many families opted to renovate their home instead of selling. This can be a very cost-effective solution for growing families who want to avoid the costs of selling their home or who can’t qualify for a new mortgage. If you’re planning to embark on a home reno project this year, keep these things in mind:
- Interest rates may continue to rise – Stress test your finances now to see whether your family finances could handle increased payments. It’s also a good idea to tweak your budget so it reflects any changes to your monthly bills.
- Assess your debt load – Taking on more consumer debt with the threat of interest rates rising can cause undue financial stress. If you have multiple outstanding debt balances, think about meeting with a debt professional to discuss your debt relief options or compare them here using this calculator.
- Prepare for the financial and mental stress of a renovation – The average renovation cost was $21,000 in the GTA last year. For a more detailed look at the breakdown of these costs, check out this site. Have you started saving for these costs? Does your budget reflect this? Another thing to think about; if you are doing extensive renovating such as adding another storey or addition to your home, will your family need alternate accommodations? How will you soak these costs? Consider also the stress that can occur when renovations aren’t on schedule or go over-budget. It might be wise to find a fixed-rate contractor who includes all labour, material, and equipment costs within their quote. This can make it easier to plan ahead.
In 2017, 61 per cent of homeowners didn’t follow a detailed budget to complete their renovations. This year, families are reporting tighter budgets due to childcare costs, higher interest rates and costs of living. All of these factors can make it harder to pay down existing debt, let alone add to it. This is why it’s best to do your homework; plan ahead for major expenses or delay them until you are financially able to take them on. For more personal finance tips, check out pink and blue mag’s personal finance column, which offers great tips for parents looking to become more money savvy.