Planning a home renovation? What you need to know about financing options

A beam is measured and marked at a housing site in Madison County, Miss., Tuesday, March 16, 2021. THE CANADIAN PRESS/AP/Rogelio V. Solis

TORONTO — When Harpreet Singh decided to convert his basement into a rental suite, funding the renovation essentially came down to two options: using his own savings or borrowing money.

As a real estate agent and former financial adviser, Singh has helped plenty of clients navigate their own home improvement projects, along with tough financial decisions. He said his advice on how to pay for a home revamp usually depends on whether the homeowner will ever see that money come back to them.

“When your property is giving you a rental income, that is something where you can justify using financing to renovate the basement because you have income coming in,” he said.

“When you have no income coming in and you decide to spend that money on (a) specific renovation — on this specific flooring or this specific pool — then you need to understand if this is a need or a want.”

Experts say Canadians are increasingly turning to financing options to fund their home renovation projects — but taking out a loan needs to make sense for their situation.

Singh, who lives in the Toronto area, is using a home equity line of credit to finance his basement conversion. As a flexible type of loan, HELOCs allow a homeowner to borrow against the equity in their property.

Their available credit increases as they pay down the mortgage principal.

Singh said using his HELOC to finance the project gives him more flexibility than relying on savings. He said financing is also an attractive option for this renovation because it will increase the valuation of his property.

Paying for the renovation up front would have meant liquidating his stock portfolio in order to have enough funds available, he said.

“I want to make sure I’m not putting too much money toward housing. I try to minimize the cash flow,” said Singh.

“That’s why it just makes sense for me to use a line of credit and keep my savings aside for ... a rainy day situation.”

Homeowners starting a reno project should be prepared for both expected and “not-so-fun surprise” costs along the way, said Francois Cote, CEO of Fig Financial, a fully-digital personal lender in Canada.

“Planning ahead and thinking about what you need from a budget perspective is probably one of the most important things because you’re always off-budget,” said Cote.

“This is where (homeowners) might start using additional credit, or they might use their credit card for the extra anticipated spend, which can then create ... additional debt.”

He said loan providers like Fig can help provide budget flexibility for a renovation project such as a kitchen or bathroom upgrade, which increase property value.

“One can view this as an investment in the home, and then if you’re able to afford the increase in the payments you’ll have to do on a monthly basis, it might make sense,” said Cote.

But he cautioned that every situation is unique. The risks of taking out a loan for such projects include taking on debt, which homeowners need to be sure they can afford to repay based on their income level and career stage.

“If there’s instability and you would find yourself unable to make your payment obligation, that would put you in a bad spot,” he said.

“If you’re currently stretched and you don’t have a lot of room available in your budget, it probably isn’t the right time to invest within the home.”

Humm Canada, a lender which provides financing plans through a fully digital application process, said its average loan size for home improvement projects in 2024 was $8,129 per consumer.

The company provides up to $30,000 to help cover substantial home improvement expenses like renovations, appliances and big paint jobs, and customers have five years to repay the amount they take out. Humm also partners with home improvement retailers, which can share in the interest on loans to help ease the financial burden for customers.

While a home improvement project may seem like more of a want than a need for many, “it’s not like fast fashion or buying a Jet Ski,” said Tim Moulton, country head of Humm Canada.

“House renovations are part of something that, over a long period of time, pays off,” he said.

“And of course, the quality of life changes quite a bit as it relates to that.”

Moulton said the company is often involved in financing backyard projects such as patio and deck additions, and is increasingly seeing customers use its services to fund solar panel installations. He called the latter a useful investment due to the cost savings it returns over the long term.

For Singh, that potential payoff is the key factor he discusses with clients when considering financing options for a project.

“Is the renovation they are doing going to add value to their property?” he said.

“Because if it’s not adding value to the property, and they’re not going to get that money back when they’re looking to sell their house, it might not be worth it.”

This report by The Canadian Press was first published Feb. 27, 2025.

Sammy Hudes, The Canadian Press