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Lethbridge, Alberta
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How to Get Help with Debt During Renovations

As a dusty spring dissipates on the Prairies, we all know summer isn’t too far off. And with the onset of summer, renovation season kicks into high gear for homeowners. Home renovations continue to be popular, as many Canadians choose to remodel their existing home rather than make a move.

For a number of homeowners, though, the renovation project wouldn’t happen without some funding help from credit cards or a line of credit, leaving potential issues with debt. That also means the time period leading up to renovations is important for asking big questions about your financial life.

Do you have existing debt?

For some homeowners it may be possible to renovate and continue to pay off existing debt. It helps if you have the right financial plan in place ahead of time. Unfortunately, a BDO poll from last summer revealed that some Canadian homeowners were willing to sacrifice debt relief in order to renovate now.

Twenty-four per cent of Canadian homeowners told us they would put off paying down debt as quickly as they wanted (or felt they should) in order to renovate.

Our poll  also revealed that Albertan homeowners expected to spend the most on renovations last summer — an average of $22,586, which is almost twice as much as what Saskatchewan homeowners expected to spend.

Debt should be a major consideration when you’re planning renovations. Carrying less debt can mean more opportunities to save, which can provide a cushion when unexpected costs arise.

In order to avoid taking on too much reno debt, take a step back and evaluate your financial situation. Also, make sure you consider external factors: including new mortgage rules, your cost of living, and what you want to accomplish long-term.

How can the mortgage stress test affect you?

A new mortgage stress test was put in place at the beginning of 2018 to protect homeowners from over-extending themselves. Current and prospective homeowners may also be dealing with higher borrowing rates than they’re used to — which could mean higher mortgage payments.

It’s important to keep an eye on the market if you’re looking to buy or renew in the near future. Will you be able to afford a higher monthly payment on your mortgage? Can renovations still work with a tighter budget?

Will higher living costs affect your ability to repay?

Different living costs can put the pinch on your household at different times. For many right now, it’s the skyrocketing costs at the pump. Commuters are certainly feeling this. Try to keep an eye on long-term trends in costs of living to ensure you’re not stretched too thin if you’ll need to make additional debt payments for your renovation.

Any other factors beyond renos that can impact your home value?

Renovating to increase the value of your home may not be as simple as you think. All sorts of factors can impact what a prospective buyer would pay for your home, such as your neighbourhood and the current lending rates.

The value of your home can even be affected by new legislation. Zoocasa (an online real estate listing service) recently did a nationwide survey showing that 32 per cent of respondents anticipate marijuana dispensaries would reduce the value of homes nearby. With the upcoming change in pot legislation, even this can be a factor that Zoocasa managing editor Penelope Graham suggests you ask your insurer about.

What other financial goals are you aiming for?

Budgeting for renovation debt payments is just part of the picture, though. Ultimately, you want to make sure the cost of your renovations won’t hurt your long-term financial goals. Those goals should always include paying off existing debt.

If you’re unsure about your debt situation as you think about these long-term goals, it’s a good idea to get some help from a debt help professional, like a Licensed Insolvency Trustee (LIT). An LIT can explain your options, and answer common debt questions to help you put together a better plan going forward. If you get that needed help with your debt before renovating, chances are you’ll make a decision that fits your budget and won’t put your long-term goals in jeopardy.

Do you have other considerations to share with your fellow homeowners who might be renovating this summer? Join the conversation on social media by using the hashtags #DebtSolutions and #HomeRenovations.

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