Financing Your Home Renovation to Care for Aging Parents
In 2015, Canadians reached a milestone where adults over age 65 now outnumber children under 15. With seniors being over 16% of the population and continuing to increase, many Canadians are finding themselves in the middle stages of life, with children at home and parents who also need some level of care.
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Maybe you are in this situation yourself and have decided that having your parents move in, or moving in with them, might be the best option for everyone. Benefits of a combined living arrangement might include:
- Reduced spending. Your parents may be able to save money on rent or mortgage payments. They may also contribute to your mortgage payments, shared utility costs, and grocery bills. Win-win for everyone.
- Easier Relocation. When family members are spread across the province, country or beyond, deciding to relocate can be a long and challenging process. When you or your parents already own a home that you can share, the issues around purchasing or renting property, from a distance, become much less complicated.
- Medical Assistance. Unfortunately, aging can often mean more medical appointments, surgeries, mobility or vision issues, and increased personal care needs. Having your parent in your home can give both of you peace of mind because you can be present in case of injury or illness and help with care and doctor visits conveniently.
So, you’ve decided to go ahead. Either you are relocating, or they are. The problem is, the house needs work in order to accommodate everyone. What are your building options?
- Accessory Apartment or In-law Suite. A completely separate unit attached to the original family home can provide privacy and autonomy for your family and for your parents, especially if they are still independent and care for themselves. Also called garden suites or secondary suites, these units have partial or full kitchens, full bathrooms, a bedroom, and living space. Thinking proactively, you may want to consider building all on one level.
- Accessibility Renovation. If they require more care or less space, or you cannot afford to add on, you may be able to get away with renovating to make room for them. Maybe you only need to change the layout, combine rooms or make modifications that help with accessibility. Consider future health and mobility issues. Your parents might be walking now, but a walker or wheelchair, in the future, might require wider doors and hallways, as well as lower cupboards. Grab-bars, railings, and specialty bathtubs and accessories are also options to think about.
Either way, you’ll have a significant amount of planning to do. Be sure to have your ducks in a row before you begin. Get the proper permits because the fines can be substantial, and the liability can be devastating if anything goes wrong. Consult with your local building department for full requirements around fire separation, sound transmission classifications and septic systems (for rural properties).
If done well, your upgrades can increase the value of your property. Unless you are highly skilled, hire a designer or an architect as well as a contractor. Involve your parents in the process by allowing them to contribute to the design process and work on the project, if possible.
Your budget is going to be extremely important. You don’t want to overextend yourself and you don’t want to be stuck with an unfinished renovation. Be as accurate as possible in estimates. Any builder will tell you there are going to be unexpected costs. Changes to design, forgotten items, and unexpected upgrades will mean coming in over-budget. If you tack on an extra 10% to your initial cost calculation, you can avoid being sidelined by unanticipated expenses. Consider the following costs:
- Initial building plans and updated drawings
- Permit application fees
- Possible zoning changes
- Contractor and labour fees
- Building materials and supplies
- Days off work to meet with contractors or work on the project
- Financing and lawyer fees for funding the renovation
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Your budget will depend on the size of your renovation and how much work you will be doing yourself. After determining the amount of money you will need, you can decide how to pay for the work. Perhaps you or your parents have personal savings from which you can draw. That being the best option, most of us will need to find another solution. You may consider one or more of the following possibilities:
- Government Grants. Your renovation may qualify for funding under federal, provincial, or municipal programs. Since affordable housing is an ongoing issue across the country, federal and provincial governments are partnering to invest in new rental units and renovations to make current homes more accessible, particularly when low income is an issue. One example is The Investment in Affordable Housing Program. Provinces and territories are also working to provide funding for affordable housing. In Ontario, for example, low-to-moderate income home-owners can apply for funding to help with urgent repairs, renovations and accessibility modifications. You can do a Google search for “Ontario Renovates” and the name of your county to find information and funding applications. Check with your municipal offices for more information. Apply early because funding is limited and the money does run out.
- Credit Card. If you plan to spend a small amount, credit cards may be the solution you need. Use caution though. If you need to carry a balance, high-interest rates make this an expensive option. The average credit cards begin around 19% interest and store-specific cards can be upwards of 30%. If you can pay balances off immediately, credit card rewards can be a bonus.
- Personal Loan. A personal loan can be obtained easily when you meet the criteria and interest rates are lower than credit cards. When you pay off the loan, you no longer have access to the cash. If you need more money, you will have to apply for another loan.
- Bank Line of Credit. This is a great option if your income allows you to pay it down regularly. The amount you borrowed will always be available to you, at a reasonable rate, so you never need to reapply. Lines of credit can be integrated with your regular bank accounts, so you can easily check on balances and transfer money between accounts.
- Current Mortgage Increase. If you have equity in your home and a good credit rating, you can contact your bank or mortgage company for a loan increase. This option spreads your payment out for a longer time, at lower interest rates. Usually, you can apply for up to 80% of your home’s appraised value. Unfortunately, if you are self-employed or have poor credit, mortgage rules are often more stringent. In this case, you may need to approach a mortgage broker or a private lender.
- Second Mortgage. If you are unable to consolidate your renovation into your mortgage, you may be able to obtain a second mortgage through a broker. This additional loan, using your property as collateral, also spreads your payment out over many years. You’ll pay more interest than a typical mortgage because the second mortgagee is taking on more risk, but you’ll be paying down interest and principal together.
- Private Lender. You may know someone, personally, who wishes to invest in your renovation. If not, a mortgage broker can help you find a private lender who is willing to help. Typically, in this situation, you make regular interest payments and the full loan amount is due at the end of a specified period of time. Read and understand the full terms of the agreement and have your lawyer review the documentation. When your project is finished, you may be able to consolidate the new loan into your existing mortgage. You may be able to get up to 80% of the value of your home, based on a home appraisal by a lender-approved company. Make sure you know the fees and penalties you will need to pay before making changes to your existing loan.
No matter how you decide to finance your project, lenders will take several factors into consideration. You will need to provide information about:
- Your income, based on current Notice of Assessment(s)
- The amount debt you currently owe
- Your credit score
- The equity in your home
- The value of your property
If your parents will be contributing financially, lenders may also take that into consideration. It is wise to have a family discussion, prior to beginning the project, about how mortgage payments, renovation costs, utilities, and other bills will be shared. This will also help in the early planning and budgeting stages.
When your renovation is finished and your finances are established, don’t forget to claim the associated tax breaks when you file your income taxes. Talk to your accountant about credits and rebates that may be available in your province or territory. A couple of examples are:
- Home accessibility tax credit (HATC). If you made modifications to your home to provide a more accessible dwelling for a person with a disability, you may be eligible to claim some of the costs when you file income taxes the following year. Eligible expenses might include permits, plans, building supplies, equipment rentals, and fixtures.
- Ontario healthy homes renovation tax credit. You may be eligible to claim up to $10,000 if you renovated your home to increase mobility and/or accessibility for a senior, over the age of 65.
Planning for a renovation so that you can share a residence with your parents is a complex process. Whether you want to share costs, reduce geographical distance or provide a greater amount of care, you have many options to fund the work. When you take the time to budget responsibly and carefully consider all of your options, you will find solutions that will work for everyone involved.