Spring is in full swing and summer is just around the corner, which means that many homeowners are moving ahead with the annual yard clean up after a long winter’s slumber. Weeding and raking soon lead to dreams of a deck renovation, or perhaps a new fence or backyard pool.
Many Canadian homeowners who are performing this annual assessment will consider funding their backyard dreams with a home equity line of credit (HELOC).
However, it brings these questions to mind: Is your home equity an untouchable fund set aside for your future retirement? Or is your home equity an asset that can be used as a borrowing tool to allow you to have the things you want now?
Like most things in life, the key to finding the correct answer for yourself is to plan ahead and think about your strategy through before you act.
Ask yourself these questions before you cash in that home equity for a fancy patio or man cave garage.
- How long am I going to own the property?
Maybe you have already fallen out of love with your current place, or you are looking to upgrade or downsize in the next couple of years. Then, deferring the financing of a renovation might be the better play.
If you plan on staying for a while or your home is your happily-ever-after castle then the investment might be right for you. Before you dive into that new pool, ask yourself: Will I get the use of this item over its useful life?
- How am I doing on my other financial goals?
Are your RRSPs topped up? Do you have the kids RESPs funded? Is the old car going to last a couple more years? Many individuals can be blind to their overall financial picture.
Looking at your home equity as part of your overall family financial plan is a key part of your financial wellness. If your financial goals are being met, then the decision whether or not to use your home equity may be made a little easier.
- How is my debt load and budget presently?
Before you slip into that chaise or fire up that grill make sure you stress test your current mortgage. Can you afford an interest rate hike? Are you already struggling with your month-to-month payments? Just because a HELOC is offered at a low interest rate doesn’t mean it won’t affect your budget. If you have room in your budget to pay off that extra debt, and your retirement goals are being met, feel free to splurge on that stainless steel grilling machine.
Remember, the equity in your home is hard earned. It’s worth your time to consider these questions before you use it to finance your next renovation project.
Planning to move ahead with that special home renovation project? Make sure to review Credit Coach: How to Avoid a DIY Disaster for a few practical tips on how to avoid the financial pitfalls and stick to your home renovation budget.
What does your home equity represent to you? Let us know in the comments below or join the conversation on Twitter @CreditCoachJS.
Jayson Stoppel is a Licensed Insolvency Trustee and Chartered Accountant with BDO First Call Debt Solutions. With over 17 years in practice, Jayson assists individuals, families and companies with financial difficulties in Thunder Bay and throughout Northwest Ontario. To reach Jayson by email: JStoppel@BDO.ca
