The exception to the maximum refinance rule
The logic behind this decision was clear – to prevent Canadians from using their home equity as a bank account like many Americans did leading up to the credit crisis in 2008.
The implications were immediate. Canadians could no longer refinance higher interest debts into low-interest rate mortgages. Not-so coincidently, consumer debt levels correspondingly jumped.
The new rule also prevented Canadians with enough home equity from refinancing for renovation purposes. Or so they thought.
Enter the little-known Refinance Plus Improvements (RPI) program. RPI, though not offered through most financial institutions, is a Canadian Mortgage and Housing Corp.-backed mortgage product that allows borrowers to refinance up to the improved value, or value after renovations, of their home.
For example, a homeowner with a property worth $400,000 prior to improvements would be allowed to refinance up to $320,000. But if the owner intended to renovate and increase the home’s value to $440,000, he or she could refinance up to $352,000. That would give the homeowner an additional $32,000 to complete the renovations.
The only stipulation is the homeowner must complete the renovation and pay for it in full prior to the bank releasing the additional $32,000. The good news is the rate would be the same as a normal mortgage, which is currently at an all-time low.
Most homeowners who use this program pay for the renovations using a credit card or through retail credit from home improvement stores. Some renovation companies can also arrange short-term financing to meet this requirement.
So if some spring landscaping or home improvement thoughts are on your mind, you owe it to yourself to take a look at the RPI product. You may be just a few simple steps away from turning your home into your dream home.
Nolan Matthias holds a Bachelor of Arts Degree in Economics, is the co-founder of Mortgage360, and the author of The Mortgaged Millionaire.
* This content was produced by CREB®Now’s advertising department, in consultation with Mortgage360. CREB®Now’s editorial department was not involved in its creation.