What You Should Know About Your Debt Before You RenovateMay 23, 2018
With summer arriving in Canada, many homeowner’s thoughts are turning to renovations. Whether you’re paying upfront or taking on debt, reno spending continues to be popular — our 2017 poll found that 43 per cent of homeowners intended to renovate their home last year, with an average spend of over $16,000.
If you intend to use credit to offset reno costs, it’s important to go in with a plan and understand your financial picture.
This includes investigating interest rates and making sure you won’t have difficulty making payments if borrowing rates go up. While experts are uncertain what rate changes are on the horizon, some are predicting big adjustments. One economist predicts five increases over the next year, which could have a huge impact on Canadians with variable rate debts.
Specific examples of debts that will be affected by a rate increase include a Home Equity Line of Credit (HELOC), credit card debt and a variable rate mortgage.
If you have variable interest debt, your past could help predict your future. Sit down and look at the last 12 months of bills and calculate how interest rate increases have affected your monthly payments. Will you have enough wiggle room in your budget to afford future rate hikes?
As part of your research, online debt calculators like this one can help with any debt decisions you need to make. You may decide to put your reno funds towards debt payment instead of a home reno, especially if a renovation will mean adding to your debt. Beyond that, though, it’s also important to have a full understanding of your financial picture and how rising interest rates can change your budget.
For more advice about renovations spending, listen to this podcast episode. Our Licensed Insolvency Trustees cover four things you should know before you tackle your own home renovation.