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Purchasing a home is not easy these days. You’ve worked hard and saved enough for a down payment, land transfer tax, closing costs, and moving expenses.  However, even if you own a home today, moving to a new place can be expensive and cash flow intensive. Once you buy lawn mower, shovel, garbage bin, blinds, area carpet, furniture, etc. It adds up!

This doesn’t give the average home purchaser much room to make any improvements. Perhaps you also want to freshen up the house a bit and do a few renovations. Maybe you want a new counter-top, furnace/air-conditioner, flooring, painting, porch steps, bathroom, etc.  There simply isn’t enough cash to make this happen.

Enter the Purchase Plus Improvement (PPI) mortgage program.

Under this program, a purchaser can add the value of certain home improvements to the actual value of the home and mortgage. There are obviously some restrictions, such as maximum amount, so please contact me to discuss the details. With the program, it’s possible to tack on $2K for painting the home to $40,000 for a new kitchen. Rather than borrowing this on credit cards at rates around 19%, they can tack it onto the value of the home and mortgage to pay it off slowly and at better rates.

Here is an example of how it works. Mary and Bob purchase a new home that needs a bit of work.

500,000           - Purchase price of home
25,000             - 5% down payment
475,000           - Mortgage amount before CMHC insurance premium
494,000           - Mortgage amount after CMHC insurance premium

Mary and Bob want a new kitchen which they estimate at $20,000.  They receive an itemized quote from a general contract to renovate the kitchen floors, cupboards, back splash, counters, sink, etc. for $20,000.

What happens to the mortgage financing with the PPI?

520,000           - New value of the home = 500,000 + 20,000 improvements
26,000             - 5% down payment
494,000           - Mortgage amount before CMHC insurance premium
513,760           - Mortgage amount after CMHC insurance premium
$93.51             - Increase in the monthly payment amount

Mary and Bob decide this is a great idea. They know they are going to be cash strapped and don’t mind adding $93.51 to their mortgage payment for a bright shiny new kitchen.  The lender releases the money to do the renovations which is held in trust at the Lawyers office. After the work is completed, a simple inspection is performed to verify that the work was completed and the lender informs the lawyer to release the money to the Mary and Bob.

Some key notes:

  • Money is released after the work is completed. This is a reimbursement and not an upfront cash supply to buy materials/labor.
  • Work must be completed in a certain time period, usually 90 days