When looking at different renovation and construction loans, there are number of things that need to be considered in order to determine which option is the best fit for your particular project and financial profile.
If the size of the renovation and the related costs can be covered off within 6 months to one year from the time the work is completed, then you most likely would want to consider financing facilities that are open for repayment and provide you with easy access to the funds required.
This would speak towards a unsecured line of credit, or secured home equity line of credit.
The funds in both cases are readily available at an interest rate that will be based on the prime rate and can be paid back at any time without penalty.
Lines of credit do not typically have any use restrictions so once in place, provided that you meet the terms and conditions of financing on an ongoing basis, you can use the funds for anything you like.
Even if you plan to repay the cost of renovation off over a longer period of time, you can choose to gradually pay down the line of credit, or term the renovation costs out via a term loan or second mortgage financing option.
A term loan can be secured or unsecured with varying repayment periods. If the loan is unsecured, the repayment period available is typically not going to be more than seven years. For a secured term loan, the amortization period can be as high as 30 years.
If the renovation project is more significant than what can be financed through a line of credit, then a construction loan can be arranged with an established draw schedule for advances once certain bodies of work are completed.
At the end of the renovation and construction work, the construction loan would then be termed out into a long term mortgage which could be a home mortgage refinance of an existing residential home mortgage, a new first mortgage if nothing was previously in place on the property prior to construction, or a second mortgage.
As you can see there are a lot of different approach you can take when financing a renovation project.
The key is to understand the cost of the project and your long term plans for repayment of any Toronto home renovation loan you take on.