A simples guide

Funding home improvements: remortgage or loan?

Many people decide after getting on the property ladder that they now want to make home improvements – whether it’s an extension or just redecorating to put your own stamp on the place.

Most of us will have to use some sort of borrowing to get the money for these improvements, and here we look at the various options, including remortgaging for home improvements or a home improvement loan.


Remortgaging or taking out a loan

You have a number of options for how to fund your home improvements. You just have to decide which one is right for you. It’s just worth bearing in mind the disadvantage of borrowing money against your home. If you don’t keep up the repayments, you could lose your house – so it’s vital to bear this in mind when considering remortgages or a second mortgage.

  • Remortgaging – say your existing mortgage has £150,000 outstanding and you want £20,000 for home improvements. You may be able to find a mortgage lender willing to lend you £170,000, which you can use both to pay off the existing mortgage and fund the work on your home. However, you need to be aware that doing so will increase the amount of borrowing that is secured against your home. Also bear in mind that you’ll need to make the higher repayments over the full term of your mortgage, which could be 25 years or more. How high the repayments on your remortgage will be will depend largely on what proportion of your property value the remortgage amount represents -your Loan to Value (LTV) - and you’ll have other fees associated with remortgaging so make sure you include all of these in your calculations.
  • A further advance from your mortgage lender – you could try approaching your existing mortgage lender and asking if they are prepared to lend you more money. You might do this if your existing mortgage deal is a good one, or realise you have significant penalties for terminating your existing mortgage. However, once again any such advance would be secured against your home, and you would still need to pay the extra money back. The interest rate you are charged on the additional borrowing could be different to your existing mortgage rate.
  • A second charge secured loan – another option is to keep your existing mortgage intact, but rather than approaching your existing lender, you find another lender who is prepared to grant you a second mortgage. You would then need to make repayments on both mortgages simultaneously, potentially over many years. As with a further advance, this option also involves increasing the amount of borrowing that is secured against your home, and the second charge loan may also be offered at a rate that is much higher than that of your first charge mortgage so work out whether you can afford this.
  • An unsecured loan – if you don’t want to secure additional borrowing against your home. You could try approaching a bank or other lender for an unsecured personal loan. These types of loans typically have repayment terms of up to five years. They also often have fixed interest rates so it’s easier for you to plan your budget. Just make sure you can keep up with the repayments.
  • Credit cards – if the cost of your home improvements isn’t too high, you could consider paying on your credit card. This could be an attractive option if you can obtain a low interest rate, or even a card with a 0% introductory rate. Paying via credit card also gives you some protection should there be issues with the contractor you engage to carry out your home improvements as you’ll be protected by Section 75 of the Consumer Credit Act. Before taking on any credit card debt, as with any other form of borrowing, you need to be totally clear what the required repayments will be, and you need to be confident you can afford to at least make the minimum repayments on time each month.
  • Savings – saving up to fund home improvements has one obvious advantage, which is that you won’t have to take on additional debt. However, will you need to be disciplined enough to resist the temptation to dip into your savings to spend on other things? Just remember that savings interest rates are very low at present, and that some of the higher rate savings accounts may have restrictions on access to funds.

Considerations when you're looking to fund home improvements

So, there are some to make, including:

  • If you’re considering remortgaging for an increased amount, or taking out a new loan, are you confident you can afford the increased payments?
  • If you’re trying to save to build up the amount required, is this realistic?
  • Are the home improvements really necessary? If you can’t afford to fund them, you may have to rethink your plans.

Whatever option you choose, you should shop around for the right option for you. Why not start comparing mortgages, savings, loans and credit cards now to find out what’s on offer and what might suit you best? 

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