By Josh Tagg, mortgage broker · Mortgages for Less with INDI Mortgage · Calgary, serving all of Alberta ·
Sam* and Jess* were moving back to Calgary and found the house they wanted: an $870,000 five-level split built in 1996, in an established inner-city neighbourhood. It still had its original Poly-B water lines, and the Poly-B had to come out. Instead of paying for the work in cash after they moved in, we added the $28,734 of quoted work to their mortgage. It cost them about $145 a month.
Can you add the cost of replacing Poly-B to your mortgage when you buy?
Yes. It’s called a purchase plus improvements mortgage. The lender looks at what the home will be worth once the work is done, lends against that value, and holds back the improvement money until the work is finished.
On this purchase, the improvements came from three written quotes:
| Work | Quote, with GST |
|---|---|
| Replace the Poly-B water lines throughout the house with PEX, new shut-off valves and hose bibs | $11,340 |
| Repair the walls and ceilings opened up to reach the pipes | $3,675 |
| Paint the interior | $13,719 |
| Total | $28,734 |
Why did the Poly-B have to be replaced?
Poly-B is a plastic water pipe found in some older Alberta homes. As Josh puts it, insurers and lenders require it to come out, so for Sam and Jess replacing it wasn’t optional. It came with the house.
Without a purchase plus improvements mortgage, the plumber, the drywaller and the painter would have been paid out of savings right after closing, just after those savings went into the down payment. Instead, the cost of the work went into the mortgage and is paid off at the mortgage rate.
The plumbing job was not small. The house is split over five levels, with bathrooms on four of them and the kitchen and laundry on another. The plumber had to open ceilings and walls on several floors to reach the pipes, which is why the drywall repair and the painting were part of the same plan.
How does a purchase plus improvements mortgage work?
The lender adds the quoted cost of the work to the price and treats the total as the home’s value. Here, that was $870,000 plus $28,734, or $898,734. The mortgage is then based on that value instead of the price alone.
Sam and Jess put 10% down, so the mortgage was 90% of $898,734. Because they put down less than 20%, it was an insured mortgage with a default insurance premium added to the loan.
| Step | Amount |
|---|---|
| Purchase price | $870,000 |
| Plus the quoted improvements | $28,734 |
| Value the lender used | $898,734 |
| Down payment, 10% | $89,873 |
| Mortgage, 90% | $808,861 |
| Default insurance premium, 3.10%, added to the loan | $25,075 |
| Total mortgage | $833,936 |
On closing day, the lawyer held back the $28,734 instead of paying it out. Sam and Jess got the keys on September 1, 2023. The plumbing was done that month, and the drywall and painting were finished and invoiced by mid-October. Once the work was finished, the holdback was released.
The rules for this kind of mortgage come from the default insurers. CMHC, for example, insures up to 95% of the as-improved value on a one- or two-unit home you live in. When the improvements are 10% of that value or less, the money is paid out in a single advance once the work is done (CMHC). Here the work was about 3% of the value. Each lender then sets its own limits on top, so how big the renovation can be depends on the lender.
What did adding the work cost them?
| Item | As-is | With improvements |
|---|---|---|
| Down payment at 10% | $87,000 | $89,873 |
| Total mortgage, including the premium | $807,273 | $833,936 |
| Monthly payment | $4,396.51 | $4,541.72 |
Both columns use their actual rate: 4.34%, fixed for five years, over a 25-year amortization. The as-is column is our own calculation of the same mortgage without the improvements.
So $28,734 of plumbing, drywall and paint cost them $145 a month and $2,873 more at closing, because the 10% down payment is on the as-improved value. Paid at the mortgage rate over 25 years, that’s more interest in total than paying cash. In exchange, they moved in with their savings intact and the Poly-B gone.
They also kept the downtown condo they already owned and rented it out. Both of them had credit scores above 800 and two professional salaries, so the file qualified with the condo’s rent counted.
When doesn’t this work?
The quotes set the ceiling. Only the quoted amount goes into the mortgage. The painting here came in about $2,780 over its quote, and that difference was theirs to pay.
The work also has to be done before the money is released. The lender pays the holdback after the work is finished and checked, not before. Contractors may want paying before the holdback comes through, so plan how you’ll cover that gap.
It’s for work that adds value to the home, not furniture or anything you’d take with you. And if the renovation is large compared with the home’s value, the money is paid out in stages as the work goes, not in one advance.
Who to call if this sounds like you. Josh Tagg is a Calgary mortgage broker who has been arranging mortgages across Alberta since 2006. He leads the Mortgages for Less team at INDI Mortgage, took over the brokerage his father founded in 2003, and is licensed by the Real Estate Council of Alberta. The lesson of this file: if the house you want comes with work that has to be done, like Poly-B, you don’t have to pay for it in cash after closing. Get written quotes early and tell your broker before closing, and the work can go into the mortgage. Read how we help Calgary buyers. Call (403) 241-3255, book a call, or apply online. It’s free, there’s no credit check to start, and there’s no obligation.
Frequently asked questions
Can I add the cost of replacing Poly-B plumbing to my mortgage?
Yes, with a purchase plus improvements mortgage when you buy. In this case $28,734 of quoted work, for replacing the Poly-B, repairing the drywall and painting, was added to the mortgage on an $870,000 Calgary house. It added about $145 a month to the payment.
Do I have to replace Poly-B plumbing when I buy a house?
On this purchase, yes. As Josh puts it, insurers and lenders require Poly-B to come out, so replacing it wasn’t optional. A purchase plus improvements mortgage let the buyers pay for it at the mortgage rate instead of in cash.
How does a purchase plus improvements mortgage work?
The lender adds the quoted cost of the work to the purchase price and lends against that total. The lawyer holds back the improvement money on closing, and the lender releases it once the work is done.
How much down payment do I need for a purchase plus improvements mortgage?
It’s based on the as-improved value, not just the price. Here, 10% of $898,734 was $89,873, about $2,873 more than 10% of the $870,000 price.
What happens if the renovation costs more than the quote?
You pay the difference. Only the quoted amount goes into the mortgage. In this case the painting came in about $2,780 over its quote.
When do I get the improvement money?
After the work is finished. The money is held back on closing and released once the lender confirms the work is done, so you need to be able to cover the work until then.
Found a house that needs work? Get your quotes and your mortgage lined up early, so the work can go into the mortgage.
*Names and some details have been changed to protect the clients’ privacy. Figures come from the clients’ file and illustrate one case. Your own approval depends on your income, credit, property and lender. This is commentary, not advice. Rates and figures as of September 2023.
