Finance a renovation with your mortgage

Your four options compared

1. Refinance your mortgage

Replace your mortgage with a larger one, up to 80% of the appraised value, and take the difference as cash. One rate, one payment, and a firm repayment schedule. The downside is the penalty if you are mid-term: the greater of three months' interest or the IRD on a fixed rate. Near renewal, it is often the cleanest route. Our guide to how refinancing works in Canada covers the penalty math.

2. A home equity line of credit

A revolving line, up to 65% of value on its own or 80% combined with your mortgage. You draw as invoices arrive and pay interest only on what's out. That suits renovations well, since costs come in stages and often run over. The catch is the interest-only minimum; without a payoff plan, the balance can linger. See HELOC options for limits and costs.

3. Purchase plus improvement (if you're buying)

Buying a home that needs work? A purchase-plus-improvement mortgage adds the renovation cost to your purchase mortgage, based on the home's value after the work. The renovation funds are held back and released once the work is done. Your down payment is calculated on the purchase price plus the improvements.

4. An unsecured renovation loan or line

No equity, or a small job? A personal loan or unsecured line needs no appraisal and closes fast, but rates are much higher. Example: $50,000 at an illustrative 10% over five years is about $1,062 a month and roughly $13,700 in interest. Useful for small projects; expensive for big ones.

Quotes, holdbacks and draws

Lenders who lend against renovation plans want written, itemized quotes from a contractor: scope, materials, labour and timeline. A vague one-line estimate tends to stall the file.

With purchase-plus-improvement and as-improved financing, the renovation money is usually a holdback. The lawyer keeps it at closing and releases it once an inspector or appraiser confirms the work is complete. That creates a cash-flow gap: the contractor wants deposits and progress payments before the holdback is released. Plan to cover that from savings, a line of credit, or a contractor who accepts payment on completion.

Large projects may be funded in draws, with an inspection before each release. That protects you as well as the lender, since money only goes out for work that is actually done.

The "as improved" appraisal

An as-improved appraisal values your home as if the planned work were finished. Some lenders and programs will lend against it. Example: a home worth $750,000 today that appraises at $820,000 as improved. At 80%, the borrowing limit moves from $600,000 to $656,000, which can close the gap on a bigger project. The higher amount usually comes as a holdback, and only work that adds value counts. A new roof protects value; it rarely moves the appraisal much.

Costs to budget for

An appraisal ($300–$500), legal fees ($800–$1,500), possibly an inspection fee for each draw, and any penalty if you break your mortgage early. Building permits and the costs of making a suite legal belong in the project budget, not as an afterthought.

How it works, step by step

1. Price the project. Get written, itemized quotes and add a contingency for surprises.
2. Check your equity. Take 80% of your home's value, subtract what you owe, and compare that with the project cost.
3. Choose the product. Pick a refinance, HELOC, purchase-plus-improvement or renovation loan based on timing, penalty and how costs will be paid.
4. Appraisal. The lender values the home as it is or, for some programs, as improved.
5. Fund and draw. Receive a lump sum, draw on a line, or have holdback funds released after the work is inspected.

If you'd rather take a lump sum for a mix of renovation and other goals, a cash-out refinance may make more sense than a renovation-specific product.