Carrying out home improvements can be expensive and therefore you may need to borrow money. Here we look at the ways in which this can be achieved and considerations you should have.
What ways can you raise money for home improvements?
There are several ways in which this can be achieved such as:
Unsecured Loans – These are typically offered by your high street banks plus there are some online lenders also. The loan amounts tend to range from £500 to £25,000 and you can generally spread the monthly payments over 1 – 5 years. Taking out a loan can be a quick process of a matter of days.
Further Advance – This would be provided by your current mortgage lender. Not all lenders offer this option, but it is certainly worth exploring.
Secured Loan – This would be a 2nd mortgage secured against your property. As the loan is secured against an asset these loans can be from £10,000 to £500,000+ (equity and affordability dependant) and the payments can be spread over a longer period of time such as 25 years.
Remortgage – This is a new mortgage which would pay off the existing mortgage and at the same time you can raise the extra required money for the intended home improvements. As a mortgage you can borrow larger sums of money (equity and affordability dependant) and again spread the monthly payments over a longer period of time – say 25 years for example.
It is important to explore all these ways to finance your home improvements to ensure that you are fully aware of your options to allow you to make the best choice going forward. A mortgage broker can help you come to this decision.
Low Rates – When compared to unsecured loans, credit cards and secured loans taking out a remortgage could offer you the lowest rate which would result in you paying less interest.
Larger Borrowing – As the borrowing is secured against your home or a property you could borrow larger sums of money which may be required if you intend to carry out major home improvements such as an extension or loft conversion.
Spread the payments – the more you borrow, the more you have to pay back, but with a remortgage you could spread the payments over a longer term such as 25 years or longer perhaps. Obviously the longer the term the more you will have to pay back in interest in the long run, but by having a long repayment term it could make the monthly payments more affordable.
Bad Credit – If you have a low credit score as a result of bad credit being registered in the past such as missed payments, defaults, county court judgements, bankruptcy or IVA you will probably struggle to borrow money using an unsecured loan for example, however with a remortgage as the borrowing is secured against an asset the lenders are more flexible and are willing to help clients that have had previous financial issues.
Why take out a Secured Loan instead of a Remortgage?
When borrowing money for home improvements many people don’t instantly think of a secured loan as a way to achieve this. Here are some reasons why a secured loan maybe more suited for you to borrow money:
Redemption Fees – If you were to remortgage you may have to pay an ‘Early Redemption Charge’ if you are in a fixed rate period for example. In some cases these redemption fees can be quite heavy, however if you take out a secured loan you therefore avoid these redemption charges.
Term – You may have a mortgage with a term of 20 years left, however you would like to borrow the home improvement money for a smaller period of time such as 10 years. A secured loan would allow you to have the borrowing over a smaller term and would therefore be paid off before the main mortgage.
Credit Profile – Potentially a remortgage may not be possible due to previous bad credit that was registered. Secured loan lenders are traditionally more flexible when it comes to assessing clients that have had bad credit registered against them.
How much could I borrow?
Lenders typically lend around 4 to 4.5 times your income however there are many factors that are taken into consideration, for example:
Term – How long will the new mortgage be over? The shorter the term, the higher the monthly payments resulting in the less you could afford to borrow.
Financial Commitments – If you have loans or credit cards that you pay out for this will reduce the amount of disposable income you have, and then in turn reduce the amount you can borrow.
Dependants – Depending upon the family set up it could reduce how much you could afford to borrow. For example a couple earning £50,000 per year will generally have more surplus income to pay for home improvements when compared to a couple earning £50,000 who have children.
Income Structure – If you receive a lot of your income through overtime or bonuses lenders may be reluctant to use all this additional income unless it is guaranteed in your contract.
How long does a home improvement remortgage take?
Typically this should take around 4-6 weeks to complete. The key with a smooth and quick application is to always provide the requirement information asap.
Why should I use a mortgage broker?
As mentioned above there are several ways in which you can borrow the money for home improvements. Working out the most cost effective way to do this takes a lot of time and by using a broker who can help guide you to making the right decision could save you thousands of pounds in the long run.
How to remortgage for home improvements?
Our experienced remortgage advisers will be happy to help you raise the required money for the home improvements you wish to carry out. Please either call us or complete the enquiry form above where you can schedule a call with a remortgage adviser.
By remortgaging you can raise money for the home improvements that you want to carry out, although bear in mind there are other ways to raise money which should be explored, such as an unsecured loan or a secured loan.
Making sure you can afford the remortgage is esential. Lenders will typically require the last 2 years tax calculations & tax overviews or your accounts. Most lenders will work out the affordability using the net profit figure.