What You Need to Know About Borrowing More on a Mortgage
Buying a home is one of the most significant financial commitments many will make in their lifetime. But over time, needs can change, or unexpected expenses can arise. This is where additional borrowing on a mortgage can come into play. It is helpful to know what additional borrowing on a mortgage means, why someone might consider it, and the key considerations to keep in mind.
What is Additional Borrowing on a Mortgage?
Remortgaging – borrowing the extra money with a new mortgage with either your existing or a new lender.
Further advance – taking out an additional / 2nd mortgage with your current mortgage lender.
Secured Loan with a new lender also known as a ‘second charge mortgage’ – This new loan will have its unique term, interest rate, and monthly repayment, which will differ from your original mortgage.
Reasons to Borrow More Money on Your Mortgage
There are many reasons to borrow more money on your mortgage, with the following options being amongst the most common:
Home improvements can range from minor modifications to major overhauls. Whether it’s updating an outdated kitchen, adding an extra bedroom, landscaping the garden, or putting in a new bathroom, these changes can significantly enhance the liveability and aesthetics of a home.
What are the benefits of borrowing more on your mortgage to carry out home improvements?
Property Value Increase: Well-thought-out improvements can boost the resale value of your home. For instance, kitchen and bathroom renovations often yield a high return on investment.
Enhanced Living Experience: Apart from monetary benefits, home improvements can enhance your daily living experience, offering more comfort and functionality.
Energy Efficiency: Upgrades like window replacements or insulation can lead to long-term savings on utility bills.
Further considerations when borrowing more to undertake home improvements
Budgeting: It’s essential to budget accurately for home improvements to avoid overspending. Always factor in a contingency for unexpected costs.
Permissions: Depending on the scale of the project, you might need planning permissions or permits, so it’s crucial to check local regulations.
Debt Consolidation: Debt consolidation involves taking multiple debts—such as credit card balances, personal loans, or car loans—and combining them into a single debt, typically with a lower interest rate. Typically the goal is to reduce the client’s outgoings each month.
Simplified Finances: One payment, one interest rate, and one lender can make managing finances easier.
Potential Savings: By consolidating high-interest debts into a mortgage with a lower interest rate, you might save a significant amount over time.
What do you need to consider when borrowing more with debt consolidation?
Longer Repayment Period: While monthly payments might be lower, consolidating debts into a mortgage could mean paying them off over a longer period, which might increase the total interest paid.
Risk to Your Home: Remember, your mortgage is secured against your home. By consolidating unsecured debts into your mortgage, you’re essentially putting your home at risk if you can’t keep up with repayments.
Big Purchases: Life is full of significant moments and purchases. Whether it’s buying a car, funding a once-in-a-lifetime trip, or celebrating a grand wedding, these moments often come with hefty price tags.
What are the benefits of borrowing more to fund big purchases?
Immediate Funding: Additional borrowing can provide the funds needed for these big-ticket items without draining your savings.
Potentially Lower Interest Rates: Mortgages often come with lower interest rates than personal loans or credit cards.
What should you consider when borrowing more to fund a big purchase?
Financial Planning: It’s crucial to evaluate whether the purchase is a need or a want and understand the long-term implications of adding the expense to your mortgage.
Total Cost: Remember that while the interest rate might be lower, spreading the cost over many years can make the purchase more expensive in the long run.
Investment Opportunities: Using the equity in your home can offer a chance to invest in other opportunities, such as buying another property (Buy to let) or investing in your business.
What are the benefits of borrowing more to take advantage of investment opportunities?
Leveraging Assets: You’re essentially using your home’s value to potentially generate more wealth and maybe have other income streams.
Advantages and Disadvantages of Additional Borrowing on Your Mortgage
As you would expect, there are advantages and disadvantages of borrowing more on your mortgage.
Advantages of borrowing more on your mortgage
Some of the positive reasons to consider borrowing more on your mortgage include:
Lower Interest Rates: Mortgages often have lower interest rates than other forms of borrowing.
Flexibility: You can spread the repayments over a longer period, which might reduce monthly costs.
Higher levels of borrowing: Unsecured borrowing with loans and credit cards tend to max out at £25,000, whereas with a remortgage or secured loan you can borrow much more.
Disadvantages of borrowing more on your mortgage
There are some potential drawbacks to borrowing more on your mortgage, so please consider these points:
Risk to Your Home: If you can’t make the repayments, your home may be at risk.
Longer Repayment Period: You might end up paying more interest over a more extended period.
Fees and Charges: There might be additional costs associated with borrowing more.
Borrowing more money on your existing mortgage
If you are considering borrowing more on your existing mortgage, but need assistance in determining if this is the right move for you and the options you have available, we can help.
Call The Moneyhub Limited on 0203 725 5830 and speak to one of our highly specialised and dedicated Mortgage Advisors, or you can complete an enquiry form which will allow you to schedule a call time.
DISCLAIMER: These articles are for information only and should not be construed as advice.
You should always seek advice before taking any action