How to Finance Home Renovation in Canada?

How to Finance Home Renovation in Canada?

How to Finance Home Renovation in Canada?

Renovating your home in Canada can be exciting, but finding the money to do it can feel overwhelming. Knowing how to finance home renovation can help make it easier. Whether you’re planning a small update or a big makeover, exploring different ways to pay for it is important. 

There are many options available, from home equity loans to refinancing your mortgage. Finding the best way to finance home renovations in Canada means understanding these choices and picking what works best for you. In this guide, we’ll explain the simplest ways to finance home renovation, so you can make your dream home a reality.


Why Consider Financing for Home Renovations?

Financing your home renovations can make your dream projects more accessible and manageable. In Canada, many homeowners look into how to finance home renovation to spread out the cost over time instead of paying everything upfront. This can help you complete larger or more comprehensive projects that might otherwise be out of reach. 

Finding the best way to finance home renovations in Canada can also add value to your home, making it a worthwhile investment. Whether you opt for a home equity loan, a personal loan, or refinancing your mortgage, exploring these options can provide the flexibility and resources you need to finance home renovation projects and turn your house into the home you’ve always wanted.

home loan

Also Read: 7 Things to Do After Home Renovation

Home Renovation Financing Options in Canada


Home Equity Line of Credit (HELOC):

A Home Equity Line of Credit (HELOC) allows you to borrow against the equity in your home. This option provides flexibility, as you can draw funds as needed up to a certain limit. According to CMHC, HELOCs often come with lower interest rates than personal loans or credit cards, making them one of the best ways to finance home renovations in Canada. With the current prime rate around 2.45%, a HELOC can be an affordable way to manage renovation costs.


Home Equity Loan:

A home equity loan is another way to use your home’s equity to finance home renovation. Unlike a HELOC, this loan gives you a lump sum upfront, which you repay with fixed monthly payments over a set term. Home equity loans typically offer lower interest rates than personal loans. As of 2023, interest rates for home equity loans in Canada range between 3% to 5%, making them a stable choice for larger projects.


Mortgage Refinancing:

Mortgage refinancing involves replacing your current mortgage with a new one, often with a higher principal amount, to access extra funds for renovations. This option can spread your renovation costs over the life of your mortgage. RBC notes that mortgage refinancing can be a cost-effective way to finance home renovations, especially with mortgage rates currently averaging around 2.5% to 3.5%.


Personal Loans:

Personal loans are a popular choice for financing home renovations due to their simplicity and quick approval process. These loans don’t require using your home as collateral, but they usually come with higher interest rates than HELOCs or home equity loans. In 2023, personal loan interest rates in Canada typically range from 6% to 12%, depending on your credit score and financial situation.


Government Grants and Rebates:

The Canadian government offers various grants and rebates to help finance home renovation projects that improve energy efficiency. Programs like the Canada Greener Homes Grant provide up to $5,000 for eligible retrofits. Additionally, provincial programs such as Ontario’s Home Efficiency Rebate Plus can further reduce costs. Exploring these options can significantly lower your out-of-pocket expenses.


Credit Cards:

Using credit cards for financing home renovations can be convenient for smaller projects. However, due to high-interest rates, often around 19% or more, this option should be used with caution. Some credit cards offer introductory 0% interest rates for a limited period, which can be beneficial if you can repay the balance quickly.



Using your savings is the most straightforward way to finance home renovations. It avoids interest costs and debt. Many financial advisors recommend having a dedicated renovation savings fund. According to Statistics Canada, the average Canadian household saves around $852 monthly, which can quickly add up to fund your renovation projects without borrowing.


Factors to Consider When Choosing a Financing Option:

When deciding how to finance home renovation projects in Canada, it’s important to consider several factors to find the best way to finance home renovations. Here are the key aspects to keep in mind:

home mortgage


Interest Rates:

Interest rates significantly impact the total cost of financing home renovations. Options like HELOCs and home equity loans generally offer lower interest rates compared to personal loans and credit cards. As of 2023, HELOC rates in Canada are around 2.45%, whereas personal loan rates range from 6% to 12%. Choosing a lower interest rate option can save you a substantial amount over time.


Repayment Terms:

Different financing options come with varying repayment terms. Home equity loans and mortgage refinancing typically offer longer repayment periods, sometimes up to 25-30 years, with fixed monthly payments. In contrast, personal loans and credit cards might have shorter terms and higher monthly payments. Assessing your ability to manage these payments over time is crucial when selecting the best way to finance home renovations in Canada.


Loan Amount:

The amount you need to finance home renovation can influence your choice of financing. For larger projects, options like mortgage refinancing or home equity loans might be more suitable, as they often allow you to borrow more. For smaller projects, personal loans or credit cards might suffice. Government grants and rebates can also provide additional funds, especially for energy-efficient renovations.



Flexibility is another important factor. HELOCs offer the advantage of borrowing funds as needed, which can be helpful if your renovation costs are uncertain or spread out over time. This flexibility makes HELOCs a popular choice for those looking at how to finance home renovation in stages. In contrast, home equity loans provide a lump sum, which is better suited for defined, larger expenses.


Fees and Penalties:

Different financing options come with various fees and potential penalties. For example, mortgage refinancing might include appraisal fees, legal fees, and prepayment penalties. Personal loans and credit cards may have origination fees or annual fees. It’s essential to factor in these additional costs when evaluating how to finance home renovation to ensure you choose the most cost-effective solution.


Credit Score:

Your credit score plays a vital role in determining your eligibility and the interest rates you’ll receive. Higher credit scores often qualify for lower interest rates and better loan terms. In 2023, a credit score of 700 or higher is generally considered good in Canada. Understanding your credit score can help you find the best way to finance home renovations in Canada that offers favorable terms.


Financial Stability:

Assessing your overall financial stability is crucial before deciding how to finance home renovation. Consider your income, savings, existing debt, and financial goals. It’s important to choose a financing option that won’t strain your finances or jeopardize your financial security. Sometimes, using savings or a combination of financing methods can provide a balanced approach.


Tips for Securing Financing:

Securing the right financing is essential when planning how to finance home renovation projects. Here are some key tips, with a focus on the Canadian market, to help you get the best financing options available:

  1. Aim for a credit score above 700 by paying bills on time, reducing outstanding debt, and regularly checking your credit report for errors.
  2. Compare offers from multiple lenders, including banks, credit unions, and online lenders, to find the best interest rates and terms.
  3. Get pre-approved for a loan or line of credit to understand how much you can borrow and the interest rate you will pay.
  4. Understand the benefits of different loan types, such as HELOCs, home equity loans, mortgage refinancing, and personal loans, to choose the best way to finance home renovations in Canada.
  5. Consider all associated costs, including interest, fees, and potential penalties, to calculate the total cost of borrowing.
  6. Take advantage of government grants and rebates, such as the Canada Greener Homes Grant and provincial programs, to reduce renovation costs.
  7. Outline all renovation costs, including materials, labor, permits, and contingency funds, to show lenders you have a well-thought-out plan.
  8. Include proof of income, a solid credit history, and detailed information about your renovation project to strengthen your loan application.
  9. Ensure a steady income and a low debt-to-income ratio, and avoid making large purchases or taking on new debt before or during the loan application process.


FAQs About Home Renovation Financing in Canada 


What is the best way to finance home renovations in Canada?

The best way to finance a home renovation in Canada depends on your financial situation, but popular options include HELOCs, home equity loans, and government grants for energy-efficient upgrades.


Can I use my mortgage to finance home renovations?

Yes, you can refinance your mortgage to access additional funds for home renovations, which spreads the cost over the life of your mortgage.


Are there any government grants available for home renovations in Canada?

Yes, programs like the Canada Greener Homes Grant offer up to $5,000 for eligible energy-efficient renovations.


How does a HELOC work for home renovations?

A HELOC allows you to borrow against your home’s equity with flexible access to funds, paying interest only on the amount you use.


What should I consider before taking out a loan for renovations?

Consider the interest rates, repayment terms, total borrowing costs, your credit score, and financial stability before taking out a loan for renovations.