How to Avoid Debt While Renovating Your Home

Do you have enough set aside to cover the costs of a home renovation? A new BDO Canada survey has found that 43 per cent of Canadians who are planning to renovate in the next year will use debt to pay for at least some of the work. And with the average household expecting to spend over $16-thousand on renovations, that debt could take them some time to pay off. By budgeting and saving in advance, you can avoid taking on more debt, but it might mean putting off renovations for another season or two. Consider all the costs and your reasons for renovating. If you aren’t making emergency repairs, it might be best to hold off until you’ve saved up enough in advance.

First, the good news: Canadians are covering most of their reno costs without debt

While nearly half of homeowners would take on some debt for a renovation project, most are not relying on debt to fund the full cost of their home repairs. Here’s what the poll reveals about Canadians’ renovation spending habits:

  • On average, Canadians expect to cover three quarters of their renovation costs with cash or savings, while using debt for the remaining 25 per cent.
  • Four in 10 Canadians will use some debt to pay for renovations.
  • Renovators using debt expect they’ll need to borrow enough to cover an average of 60 per cent of their renovation costs.
  • Those who will pay for renovations with cash or savings, intend to spend an average of $13,239 on renovations; those who will use debt plan on spending $20,744.


Albertans to spend the most on renos; Maritimers most likely to use credit cards

The survey also reveals some differences in renovation spending habits across the country. Alberta homeowners planning to renovate expect to spend an average of $22,586, almost twice as much as their neighbours in Saskatchewan, as well as those in Manitoba ($11,934). Quebecers expect to use debt to cover nearly one third (31 per cent) of renovation costs, while Manitoba and Saskatchewan are relying less on debt than the rest of the country (20 per cent of renovation costs).

Atlantic Canadians are the least likely to renovate in the coming year, with just 40 per cent planning renovations, compared to 57 per cent nationally and 72 per cent in Quebec. However, those who are going to renovate in the Maritimes are the most likely to cover some costs with a credit card (23 per cent) and the least likely to set a budget (19 per cent won’t do so).

Canadians will take an average of 2.5 years to pay off renovation debt

For those Canadians who will cover some of their repair costs with debt, the average amount of time they will need to pay off that debt is 30.6 months, or roughly two-and-a-half years. Using the Financial Consumer Agency of Canada (FCAC) financial goal calculator, let’s see how much servicing that debt would cost the average Canadian each month.

Assuming that they owe $9,863.40 (which is 60 per cent of the national average renovation spending of $16,439), and are using a line of credit to pay it off, here’s what their debt repayment plan would look like:

For this exercise, we are assuming that the borrower is using a line of credit with a rate of Prime + 0.5 per cent—the current prime rate at Canada’s big banks is 2.7 per cent. However, it’s possible that your interest rate could be higher. It’s best to confirm that with your bank. And if any portion of this debt was put on a credit card, the interest rate would be much higher—likely around 20 per cent. With all that said, Joe Canadian here would have to put nearly $350 a month toward his renovation debt in order to pay it off in 2.5 years.

Do you have room for an extra $350 a month in your budget?

While low interest rates might make it easier to borrow, those costs can often add up—and cost you in other ways, as well. According to the BDO poll, 24 per cent of homeowners are not paying down their existing debt fast enough, 21 per cent are not saving enough for retirement and 25 per cent aren’t saving enough for emergencies as they focus on home renovations. Would you be able to reduce your retirement contributions or your emergency fund by $350 a month in order to cover your renovation debts, and still meet your financial goals?

The best way to avoid home renovation debt is by setting a budget and saving up ahead of time. Half of Canadian homeowners have already set a renovation budget, and most of those who haven’t (42 per cent of homeowners) say that they intend to. A budget is essential to ensure that you don’t end up spending more than you can afford—and prevent you from overspending in the case of unexpected repairs. Ideally, you shouldn’t spend more than you’ve saved in order to complete your home renovation without taking on debt.

How long would it take you to pay off your renovation debt? Use our online debt calculator to find out!