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Can I remortgage to pay for home improvements?

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During the last 18 months the coronavirus pandemic has really made us re-evaluate what we want from our homes.  Whether it’s a more practical workspace, more family space, a larger kitchen or perhaps a garden revamp, there seems to be a surge in homeowners who are looking at making a number of home improvements.

One of the most common questions when it comes to home improvements is how best to finance them.  It will depend on the scale of the project, but there are a number of options, including using savings, taking out a loan or using a credit card, or by remortgaging.

With mortgage rates at an all time low, remortgaging to fund home improvements could be a real, viable option – we take a look at how this works in more detail.

Remortgaging to pay for home improvements

Home improvements could run into thousands of pounds, so in many cases you will probably need to access some form of credit to pay for them.   Whilst a personal loan, or a credit card may be the first options that come to mind, you may be able to raise the money by remortgaging.

How does this work?

When you remortgage, it is possible to apply for an additional sum which will then be added onto your overall loan.  The most common reason for homeowners doing this is to fund major home improvements.  For example, if your current outstanding balance is £100,000 you may wish to remortgage for £120,000.  The £100k would go towards your mortgage, with the extra £20,000 freed up to pay for any home improvements you intend to make.  

Will my lender allow me to borrow extra cash for home improvements?

Whether you are eligible to add an additional sum to your remortgage will depend on a number of factors:

The equity in your home

Let’s say you originally took out an 80% mortgage, meaning you owned a 20% chunk in your property.  If you’ve been paying off the capital regularly over the past few years, then you’ll likely own more than the original 20% (assuming your property hasn’t dropped in value) which means you could release some of that equity to pay for your home improvements.  Your equity may also have increased due to rising house prices too which should give you greater borrowing power. 

Your financial circumstances

Affordability is key to remortgaging, especially if you are requesting a larger sum of money.  Lenders will take into account your current financial situation such as your earnings, debts and other major financial commitments.  They’ll also want to confirm that you’re not overstretching yourself financially. 

Is remortgaging cheaper than other forms of finance?

If you are only making small home improvements such as a painting or decorating project, then it may be more sensible to consider using savings.  However for larger sums of money a remortgage could be the cheaper option, compared to other types of credit.  With many remortgage rates around 1-2%, these are considerably lower than those of a personal loan or a credit card.  

However, you should consider the overall costs.  By remortgaging, you will be paying for your home improvement costs over the term of your mortgage, rather than a few years.  This will mean more interest payments over the long term.  But spreading the cost over a number of years will mean lower monthly payments, which make it an affordable option for many people. 

Is there a reason why I shouldn’t remortgage to finance my home improvements?

If you have a decent amount of equity in your home, and can afford the monthly repayments then remortgaging to pay for your home renovations could be a savvy move.  However, it might not be the right option for everyone – here are a few reasons why:

You’re locked into a long-term deal

If you’re at the end of your mortgage deal, and ready to switch, then the process of remortgaging for a larger amount is likely to be pretty straightforward.  However, switching to a new deal before your fixed-rate deal has ended could be costly and may negate any savings you make from the new mortgage. 
Most lenders charge a penalty fee, known as an Early Redemption Charge, if you come out of your deal too early.

Borrowing extra will stretch your finances

If you don’t have a great deal of equity in your property, you may struggle to borrow more, or it may even push you up onto a higher rate.  This could make your monthly payments more expensive.  If this is the case, then it may be worth waiting a while until you have more equity.  

You’re looking to boost value in your property

There are lots of reasons why you may want to renovate your home but one thing you want to ensure is that it will actually add value to your property.  Especially if you have added an additional sum to your mortgage.   

If you are improving your home with the intention of selling in the short-term, consider whether this makes financial sense – spending a lot of money on your property may not give you the uplift in value that you hope for in the short-term.    However, if the improvements are for your own benefit, and you plan on staying in the property for the foreseeable future, then the remortgage option may work for you. 

If you are considering remortgaging to fund your home improvements, why not contact us today.  Our mortgage advisers will be able to offer you advice on your situation, and help you to find the right deal.  

Compare mortgages with So Smart Money

The above post does not constitute advice – financial, legal or otherwise. The information within this article is the author’s own opinion and do not necessarily reflect the views of SO Media or So Smart Money.


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