Homeownership comes with plenty of great moments. The day your furnace stops working in the middle of an Ontario winter probably isn’t one of them.
A leaking roof, flooded basement, failed HVAC system or unexpected plumbing problem can quickly turn into an expense worth thousands of dollars. And unlike the kitchen renovation you've been dreaming about, some repairs simply can't wait until the budget catches up.
If you don't have enough savings to cover the bill, you may have more options than you realize.
Before deciding how to pay for the work, get a clear understanding of what actually needs to be done. When possible, get more than one quote and determine what needs immediate attention versus what could potentially be completed later.
In my experience of being a Mortgage Broker in Sarnia-Lambton, there are a few neighbourhoods and areas in Sarnia-Lambton where insurance companies are usually unable to provide Water Back Up coverage. Also, general leakage or seepage of water is often not covered by insurance companies if it’s a result of maintenance or wear and tear issue. Knowing this when a repair is needed can be helpful so homeowners can take the repair to the next level to protect against any future issues that can’t be claimed as part of their home insurance.
If you have an emergency fund, this is exactly the kind of situation it was designed for. But if savings won't cover the entire repair, or using them would leave you with nothing for the next emergency, it may be worth exploring financing options.
Ontario homeowners who have built equity in their property may be able to use some of it to help cover a major expense.
One option is a Home Equity Line of Credit (HELOC). A HELOC allows you to borrow against your home equity up to an approved limit, while generally paying interest only on the amount you've used. This flexibility can be helpful when repair costs aren't known upfront or work will happen in stages.
Another possibility is refinancing your mortgage to access equity. Depending on your circumstances, this could allow you to incorporate a large expense into your mortgage financing rather than carrying it on a higher-interest form of debt.
Neither option is automatically the right one. Refinancing an existing mortgage can involve a prepayment penalty as well as appraisal, legal and other costs. HELOCs generally have variable interest rates and require the discipline of having a plan to repay what you borrow.
Personal loans, unsecured lines of credit and other financing options may also be worth comparing, particularly for smaller repairs.
When the furnace is broken or water is coming through the ceiling, getting the problem fixed quickly is understandably the priority.
But before putting a major repair on a credit card or accepting contractor financing, take a moment to understand the interest rate, fees and total cost of borrowing.
This is also where talking to your mortgage broker can help.
At Mortgage Wellness Sarnia, we can look at your existing mortgage, available equity and overall financial situation to help you understand which mortgage-related options may be available. Sometimes accessing home equity makes sense. Other times, leaving a good existing mortgage untouched may be the better choice.
If a larger than expected repair cost is imminent, we recommend that you reach out to us first to discuss the financial plan. Too many borrowers will pay for the repairs with high interest rate credit cards or lines of credit first then try to figure out what the best plan is of getting those debts consolidated into a mortgage at a later time. Often we’ll learn that our clients have kept balances on credit cards for over a year, while waiting for their existing mortgage to renew, when they could have accessed the equity in their home a year earlier with a greater cost efficient path than accumulating high interest amounts for several months on their credit cards.
An unexpected $10,000 or $20,000 home repair doesn't necessarily mean you've done anything wrong financially. Sometimes, things simply break.
Once the immediate problem is handled, focus on rebuilding. Replenish any emergency savings you've used, create a plan for repaying what you've borrowed and consider setting aside money specifically for future home maintenance.
And if you're facing a major home expense and aren't sure how to pay for it, don't assume the first financing option you're offered is your only one.
Talk to the Mortgage Wellness Sarnia team. We can help you look at the bigger picture and determine whether your mortgage or home equity could be part of the solution.
