This holds particularly true for consumers looking to take on home renovations, where open, revolving credit can prove expensive and potentially imprudent.
One product that may be the ticket for homeowner seeking to make their homes their own through renovations, because of the low interest rate environment, and because of the ease of managing one payment in terms of debt management.
CHMC offers a “Purchase Plus Improvements Program”- which offers solutions to home seekers, who feel that they have found their dream home- almost. This type of mortgage is particularly useful in centers where the supply of quality stock is limited, and purchasers are sometimes required to take a more active role to customize properties.
The way it works is this: After an offer to purchase conditional on getting approval for the program (which covers the purchase price of the home, plus the estimated cost of renovations), a contractor must provide an estimate for the expected total amount of the renovations. CMHC will approve up to 95% of the total amount.
There is a caveat though- the renovations actually must improve the value and/or the structure of the house- so cosmetic touch ups need not apply.
What does the PPIP hold over a traditional line of credit? Less flexible repayment not withstanding there are plenty of advantages: “It is a cheaper alternative, provides a better cash, flow solution, (has) ease of payments (one vs. two), similar pre-payment privileges and will improve qualifying ratios for future credit.”
While the structure of the PPIP is among it’s best features for many homeowners, there are some things to think about when choosing a PPIP mortgage over a traditional LOC- namely flexibility. “The only advantage is that typically with a PPIP mortgage the lender asks to have the work completed within a 90 day time frame, with a line of credit you can complete the work at your own pace, or if some renovation items are best done in the summer (replacing an exterior door or window for example), then you can accommodate the timing easier. That is the only advantage I can see using an unsecured line vs. a PPIP mortgage if you are buying high ratio.”