Saturday, 26 January 2013

Show me the money

Dear Joe,

I have a large project that I want to have done in my home.  I have gotten a couple of estimates which are considerably higher than I had expected.   The work needs to be done and I am confident that I can afford it.  But since I hadn’t budgeted so much, I cannot pay for it with the money I have saved.  Do you have any advice as to how best I can finance the work that I will be having done.

Thanks for your great column,



Great question, C!

I’ll preface this response by saying that I am not a financier or a banker, but I do have some valuable experience I can share with you as well as give you some places to further inquire.

First thing you need to find out, once you have ascertained that you do not have the liquid assets to bankroll a project as large as yours, is what your net worth is.  This is essentially the value of property and assets (such as investments, or collateral) minus the amount you owe on said assets.  So if the only thing you own is your home and you $50,000 on your mortgage, and your home is worth $150,000 then the net value or equity in your home is $100,000.  This is the value that a bank or other lender will use to decide whether or not you are a good risk and how much they can lend you and be assured that you have enough value in other places that can be collected should you default on your loan.  This is called security. 

So the first place to start is your bank.  Talk to your banker and see what value there is currently in your home since the home is what people most commonly use to borrow against, whether it is a home equity line of credit, a second mortgage, or a construction loan.  These are some of the tools that lenders can use to help you access the money you need for your projects.

Some other options you have are: credit cards, many credit cards offer rewards and cash advances, investments, you can withdraw money that has been put into rrsps, or mutual funds, or some contractors offer financing for your project through third party financing companies.  I wouldn`t recommend these until you have exhausted the home equity route.  That will be the simplest choice with the most favourable interest rates.

So start with the bank that you have been dealing with for years.  Hopefully you will have a good working relationship with them.  But just like interviewing contractors, don`t settle for one opinion.  Get a quote from your bank, then, go to a second bank.  Then, go see your local mortgage broker as they will have options for you as well.

I hope this helps you.  As one company puts it: ``you`re richer than you think!!`` Most people just need a little understanding as to how to leverage the money they don`t know they have.  We could all do so much more if we had a real understanding of how to make money work for us.

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