Weekly update – improvements mortgage and return on renovation investment

Good Morning,

I hope you are having a fun day so far and had a good weekend.

Rate Changes:

Fixed: Five year fixed rates have headed down a little bit and are in the 3.09 to 3.19% range, with the ten year at 3.89% still being available as well.

Variable:  The variable is now holding steady in the prime -.1 to prime +.2 range. (prime is 3.0%)

Purchase plus improvements challenges and a great calculator

I have included below a brief outline of our purchase plus improvements programs along with a link the the Appraisal Institute of Canada where they have a calculator that instantly gives you their estimated return on investment for various home improvements such as bathrooms, windows, and garages.

Appraisal estimation link:

Renovation estimator

Purchase plus improvements pitfalls:

I regularly receive calls from clients who have found their new home, the right location, floorplan, and neighborhood, but cosmetically the inside of the home looks like a bad trip back to the 80’s.  This is a case where we would often suggest our clients proceed with a Purchase plus Improvements mortgage.  There are some definite misconceptions surrounding this program that can lead to pitfalls in your purchasing process so I wanted to make you aware of them below:

Pitfalls:

1. The lender will not pay for the client’s improvements, rather the client is reimbursed once they are done
2. Lenders require the contractor quotes up front.  With this in mind it is important to ensure the contractor is lined up and able to access the property during the condition period.
3. There is only one draw available. For example if the client is replacing a furnace and the kitchen cabinets and the furnace takes a couple of hours and the cabinets a couple of weeks, reimbursement will not happen until all items are complete.
4. This program is designed for improvements, not major renovations.  As such the maximum improvement amount of 10% of the purchase price and generally cannot include any construction such as the movement or removal of walls.
5. The client starts to pay interest on the improvement money from possession.  At closing, the entire amount of the funds are advanced to the lawyer and he completes a hold back of the funds, as such the entire mortgage is advanced with interest charged at the outset.

Please always feel free to contact me with any questions or comments.  Have a tremendous week!