So you're thinking about doing a home renovation, but need to find the money to pay for it.
"The more tax-efficient they can be, the better," says Phil Seguin, a financial adviser with Assante Wealth Management in Calgary. "So if they have money outside their RRSPs, they can look at that first."
People planning home renovations should look at money saved in a Tax-Free Savings Account (TFSA) first, and any other non-RRSPs or non-taxable savings second.
"That's what savings are for," Seguin says. "Especially since there is a real risk that interest rates could go up in the future. If people have the money saved up, it's probably better -- given everything that's going on -- that they take it from there first, before adding to their debt level.
"The reality that debt levels are getting a little bit high as it is, so adding to that household debt level is probably not the best course of action right now if you can avoid it.
"I think if people are planning for two or three years down the road, the TFSA is a great vehicle for that. You can save into the TFSA, and then when you do the renovations and take that money out, it will be completely tax-free. TFSAs are very flexible, in that the money that you withdraw from them, you can put back in the future, and there are no tax implications,"
From a financial perspective, Seguin emphasizes when borrowing money, either through a line of credit or adding to a mortgage, people are mindful of interest rates.
"The potential for interest rates to go up in the next few years is very real, and they have to make sure they cannot only afford the loan at current interest rates, but that they can still afford it when interest rates go up by two or three per cent," he says.
Homeowners may also opt to use an RRSP tax refund to pay for part of the renovation, Seguin adds.
Using a credit card to help finance renovations, and paying it off right away, can be a great way to generate loyalty points, says Laura Parsons, a mortgage expert with BMO Bank of Montreal in Calgary.
However, you have to be disciplined, she cautions.
"Credit cards usually have much higher interest rates. The most expensive debt, in most cases, is credit card debt," she says.
Other good options, include using a homeowner line of credit; or the Canada Mortgage and Housing (CMHC) Purchase Plus Improvements Program, which offers CMHCinsured loans to cover a home's purchase price, as well as covers the cost of immediate major renovations or other improvements to the home.
"It's built right into your mortgage program," Parsons says. She stresses the importance of doing your homework before undertaking a renovation.
To find a reputable, reliable contractor, check RenoMark, a program of the Canadian Home Builders' Association -Calgary Region. Talk to more than one contractor, check them out with the Better Business Bureau and ask for references from the most recent jobs the contractor has completed.
"Renovations are a great way to make your home the way you want it," Parsons says. "Talk to an expert banker. We can do a review and help you through the process. There are lots of tools to help."
By Jacqueline Louie, For The Calgary Herald