Real Estate

How should we finance a renovation when buying a house?

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  • Jun 10th, 2021 8:38 pm
[OP]
Deal Addict
Nov 2, 2007
3038 posts
179 upvotes
Toronto

How should we finance a renovation when buying a house?

We want to do a pretty large reno in maybe a year after buying a house. Say we buy a $1.8m house, we have 800k cash, and deciding between getting a $1.1m mortgage versus a $1m mortgage. Should we take the $1.1m mortgage and keep some of our cash to finance our reno or get a lower mortgage $1m mortgage and ask for a loan later (after a year), if so what kind of loan, HELOC? Will I be paying more interest?
14 replies
Sr. Member
Oct 2, 2013
736 posts
215 upvotes
Mississauga
Why dont you just do 700K cash and rest mortgage and keep the 100K for reno on the side.

If you refinance later, you may have to pay refinance charges or any administrative fees.
[OP]
Deal Addict
Nov 2, 2007
3038 posts
179 upvotes
Toronto
Thanks, is that the best way? I'll have to get a larger mortgage $1.1m, 700k+ 1.1m = $1.8m. I'll be paying for a year of additional mortgage interest, vs interest on the $100k a year later when i actually need it.
Deal Addict
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Apr 12, 2013
2123 posts
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Moon
smartfood wrote: Thanks, is that the best way? I'll have to get a larger mortgage $1.1m, 700k+ 1.1m = $1.8m. I'll be paying for a year of additional mortgage interest, vs interest on the $100k a year later when i actually need it.
Do the math, what is the cancellation fee on your mortgage vs the interest for a year. You should really only consider variable since the penalty is 3 months interest.
Koodo, Public Mobile, Lucky Mobile Customer
Sr. Member
Dec 5, 2009
623 posts
621 upvotes
Get the larger mortgage. You won't find a cheaper rate to borrow money than your mortgage rate. Your reno will also be over budget by ~20%, so the extra $ will come in handy.
Deal Addict
Mar 2, 2017
1732 posts
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Toronto/Markham
smartfood wrote: We want to do a pretty large reno in maybe a year after buying a house. Say we buy a $1.8m house, we have 800k cash, and deciding between getting a $1.1m mortgage versus a $1m mortgage. Should we take the $1.1m mortgage and keep some of our cash to finance our reno or get a lower mortgage $1m mortgage and ask for a loan later (after a year), if so what kind of loan, HELOC? Will I be paying more interest?
Talk to a mortgage broker, there are specific products out for this. Depends on what you are solving for.
Realtor, Investor, CPA
Deal Fanatic
Jan 15, 2004
6595 posts
1140 upvotes
$100k isn't much in terms of renovation. It's more expensive than you think. Also, it makes sense to do a renovation before you move in. It's way too disruptive if you plan to do it one year later.
Deal Expert
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Jan 27, 2004
45854 posts
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T.O. Lotto Captain
If you have enough equity… get the collateral type mortgage product that has a revolving LoC attached to it.
The LOC limit increases as you pay down your mortgage.
Aka Homeowner readiline @ bmo
Others have similar products.

That is one option. Offers you flexibility to borrow Anytime.

Or budget your cash And get a conventional mortgage appropriately sized.
Deal Fanatic
Jul 3, 2011
5901 posts
3055 upvotes
Thornhill
smartfood wrote: We want to do a pretty large reno in maybe a year after buying a house. Say we buy a $1.8m house, we have 800k cash, and deciding between getting a $1.1m mortgage versus a $1m mortgage. Should we take the $1.1m mortgage and keep some of our cash to finance our reno or get a lower mortgage $1m mortgage and ask for a loan later (after a year), if so what kind of loan, HELOC? Will I be paying more interest?
I'm not understanding the logic behind this.

As Golden mentioned $100k is not a large reno cost.

More importantly, how can you possibly know that the house you will buy in a year is going to be about $1,8 million and need a pretty large reno?

How do you know that the $1.8 million won't be sufficient to buy a renovated house or that you would find a renovated house for the ultimate cost plus reno of $1.9 million?
Deal Addict
Feb 4, 2010
4674 posts
3498 upvotes
licenced wrote: I'm not understanding the logic behind this.

As Golden mentioned $100k is not a large reno cost.

More importantly, how can you possibly know that the house you will buy in a year is going to be about $1,8 million and need a pretty large reno?

How do you know that the $1.8 million won't be sufficient to buy a renovated house or that you would find a renovated house for the ultimate cost plus reno of $1.9 million?
They didn't say they were going to buy the house in a year. They said they were planning to do the reno a year after moving in. My understanding is they're currently in the process of buying said house. But I agree with Golden's comments nonetheless.
Deal Fanatic
Jul 3, 2011
5901 posts
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Thornhill
hierophant wrote: They didn't say they were going to buy the house in a year. They said they were planning to do the reno a year after moving in. My understanding is they're currently in the process of buying said house. But I agree with Golden's comments nonetheless.
An Oxford comma would have made that differentiation. Similar to concluding that "say we buy a $1,8m house" means they are currently in the process of buying said house or that they will do the reno after moving in.
Deal Addict
Feb 4, 2010
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licenced wrote: An Oxford comma would have made that differentiation. Similar to concluding that "say we buy a $1,8m house" means they are currently in the process of buying said house or that they will do the reno after moving in.
That was just my interpretation, I could be wrong. Also English isn't everyone's first language and even if English is their native tongue they may not have had the same opportunities or privileges of having a good education as others to know what an Oxford comma is or how to use it. Having a bit compassion and making a bit of effort to understand someone goes along way. We all make mistakes and that's perfectly OK we're not meant to be perfect.
Deal Fanatic
Jul 3, 2011
5901 posts
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Thornhill
And that was my interpretation but you didn’t care about that when you jumped all over it.
Deal Addict
May 9, 2017
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hierophant wrote: That was just my interpretation, I could be wrong. Also English isn't everyone's first language and even if English is their native tongue they may not have had the same opportunities or privileges of having a good education as others to know what an Oxford comma is or how to use it. Having a bit compassion and making a bit of effort to understand someone goes along way. We all make mistakes and that's perfectly OK we're not meant to be perfect.
Clearly the use of the term "Oxford comma" is an abhorrent act of oppression.
[OP]
Deal Addict
Nov 2, 2007
3038 posts
179 upvotes
Toronto
We are going to keep some extra cash and going with the higher mortgage to avoid having to re-finance in a year to 18 months at a potentially higher mortgage rate.

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