Should You Reduce Debt for a Home Renovation?May 23, 2018
Do you know enough about your finances — and especially your debt — to be confident about your ability to afford a renovation?
In this episode of our podcast series, our Licensed Insolvency Trustees (LITs) from across Canada talk about their top four tips that will help you make informed decisions about your home reno, so it doesn’t negatively impact your ability to reduce debt.
Let’s get to it…
- How will the Bank of Canada interest rate hikes impact your home renovation affordability?
Some economists are predicting up to five more interest rate hikes in the next two years. Those increases would be on top of the three that occurred in 2017. That means if you’re carrying consumer debt with a variable interest rate (like a Home Equity Line of Credit or credit card debt) you’re going to be paying more.
In our podcast, LIT Craig Fryzuk discusses why it’s so important to prepare yourself for a future rate hike.
One strategy is to use an online debt calculator to test out different payment scenarios at a higher interest rate. If you think it will strain your monthly budget, now is the time to explore debt relief options to help lower your monthly debt payments.
- Know the details of your mortgage
Before starting any home renovations you’ll want to know the ins-and-outs of your mortgage. In our podcast, LIT Jennifer McCracken covers a few things you should understand about your mortgage, including whether you’ll need to pass a mortgage stress test this year.
- Do you understand your ability to manage and reduce debt?
Our 2017 poll revealed that a good number of Canadian homeowners are willing to sacrifice future savings goals like retirement for home renovations now, even if it means taking on debt. Many go into home renovations without a budget and this can prove challenging should you run into cost overruns.
While the good news is that less and less Canadians are falling behind on their mortgage and debt payments, the bad news is that could change as we see interest rates rise. If your home renovation isn’t urgent, LIT Jennifer McCracken advises you try to focus on saving up for it and paying off your current debts instead.
- Review your short and long-term goals
Understanding how your renovation fits in with your other financial goals is important. For example, will a home renovation affect your ability to reduce your debt? LIT Jayson Stoppel talks about what you should consider before you embark on that reno project.