Yes, they can. Most mortgage terms will allow buyers to make initial major renovations or repairs to the property. Many refinancing options not only permit, but also insist, that all refinanced funds to go towards home repairs.

Either option will allow you to perform home repairs, under certain conditions.

Not only can mortgages be used to cover repairs, but often, they should! Mortgages are typically the lowest-rate options for financing repairs. Mortgages pay for about 15% of Canadian home repairs, making them the most popular form of credit used in renovations.

The Policies

The Canadian Mortgage and Housing Corporation (CMHC) provides the majority of mortgage insurance to first-time buyers.

CMHC policies allow for home buyers to build equity into their homes by renovating them after purchase. To obtain additional funds in a mortgage, you will provide an estimate, preferably with quotes by contractors, for all the repairs in your home.

If you already own a home, you can pay for renovations through refinancing.

Refinancing for Renovations in Canada

With most lenders, you can refinance your home for up to 80% of its value, minus any remaining debt on your previous mortgage.

Because you have more equity, a refinanced loan will often have a lower rate than your original mortgage. In Canada, it is common to find refinancing options with rates under 3%.

This makes refinancing a much more attractive option for homeowners than lines of credit, credit cards, or personal loans.

Most credit cards now carry an interest rate of 18%, while loans are almost always over 4%. The increased rates are not a huge problem for people who intend to pay off the renovations in a few months, but they are extortionate when spread out over years or decades.

Let’s look at an example:

Imagine a kitchen renovation costing $12,000 by a family with an extra $200/month in the budget that increases with inflation. They obtain a typical home equity line of credit rate of 5%, compounded annually. Assuming 2% inflation, this will cost about $2200 in interest and will take six years to pay down.

If the same family chose a refinanced mortgage at a typical rate of 2.7%, will cost about $800 in interest and will take slightly more than five years to pay off.

This difference becomes even starker with lower monthly payments. A line of credit at $100 + inflation per month will run the family $6000 in interest over 15 years, while the same with mortgage refinancing will cost about $2000 over 11 years.

Mortgage refinancing is the most affordable way to pay for home repairs. Contact Northwood Mortgage to consider your options.