Most people are saying that they wouldn’t borrow money for renovations to make the February 1, 2010 deadline for the Home Renovation Tax Credit (HRTC). The more I look at it, the more it might make sense if you can afford the extra monthly payment and can pay it off within about 6 years.
The HRTC is a 15% credit on money spent for renovations over $1,000 but no more than $10,000. So basically, if you spend $10,000 you get a credit on $9,000, a credit worth $1,350.
Now if you were to borrow $10,000 at 4% for, let’s say, a more common 5 years you would pay $184 a month and it would only cost you $1,050 in interest. Not only could you do your renovation sooner, you’d still come out ahead by $300!
It can get even better. Lets say you borrowed money and did your renovations this summer, got your tax refund nine months later, and put it towards the loan. You would then pay your loan off 8 months earlier and your total interest would only be $820! So now you would be able to do your renovations this summer, instead of putting it off, and after the interest paid, you’d still have $530 of the government’s money towards it!
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Tom Drake is the owner and head writer of Canadian Finance Blog.
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This is a fantastic government initiative. Yet like everything it comes with some risk and the individual must make an effort to make a secure decision based on projected income and safety of employment.
The HRTC is a non-refundable tax credit for qualified expenses acquired for work performed or goods acquired in respect of an eligible dwelling. This is an unbelievable government plan.