Funding Home Improvements
Steve Molina, one of our expert mortgage advisers, explains everything you need to know about funding your home improvements.
0:41 – Before Financing Your Renovations
0:58 – How Can I Borrow Money For Smaller Home Improvements?
1:17 – How Do You Pay Back Home Improvement Loans?
1:30 – Are There Any Other Options For Funding Small Home Improvements?
1:40 – Things To Keep In Mind
1:59 – How Can I Borrow Money For Larger Home Improvements?
2:12 – What Is Home Equity?
3:26 – Further Advances
3:56 – Further Advance Pros
4:13 – Further Advance Cons
4:32 – Remortgaging
4:50 – Remortgaging Pros
5:13 – Remortgaging Cons
5:45 – Second Charge
6:02 – Second Charge Pros
6:22 – Second Charge Cons
6:54 – Summary
Renovating your home is the perfect way to get the house of your dreams without uprooting your life and it can be a lot cheaper than moving, and this guide will show you how to borrow money for your home improvements.
With Brexit and house market uncertainty, many people are choosing to renovate their homes rather than move, stay tuned and we’ll show you some of the simplest way you can fund your home improvements.
- Before financing your renovations
Before you start improving your home, it’s important to get quotes from tradesmen and to research the materials and tools you need. It can also be useful to start thinking about how you want to furnish your home once you're all costed up you can start securing the money.
- How can I borrow money for smaller home improvements?
You can fund projects at ten thousand pounds and below without using any home equity instead you may want to consider a personal loan, a personal loan is normally an unsecured loan you borrow for a specific purpose like improving your property.
- How do you pay back Home Improvement Loans?
Taking out an unsecured loan allows you to finance your home improvements by a fixed payments which you can typically repay over one to seven years.
- Are there any other options for funding small home improvements?
You can consider applying for 0% credit card with the high enough credit limits.
- Things to keep in mind
If you plan to consolidate your debts into your mortgage later, be aware not all lenders will allow a further event or remortgage for debt consolidation we always recommend that you speak to us a financial advisor before you make any big decisions.
- How can I borrow money for larger home improvements?
If you got bigger or more expensive plans, then you may need to release some of the equity in your home to secure a larger loan for your renovations.
- What is home equity?
The amount of home equity you have is the current market value of your home minus any outstanding mortgage owed expressed as a percentage.
Your home equity usually changes the longer you own your property, if you've owned your home for a few years and may have increased in value you may also have paid off some of your mortgage in that time these changes are likely to result in increase in your home equity. Here is an example if you bought your home for 300 thousand pounds with a 30 thousand pounds deposit, your mortgage debt would 270 thousand pounds your home equity would be 30 thousand pounds or 10% of the initial property price. That’s forward 5 years and your home can now be worth 350 thousand pounds, let’s say also paid off 40 thousand pounds of your mortgage that time. Your remaining mortgage debt would reduce to 230 thousand pounds subtracting the remaining mortgage debt from the current market value gives you your home equity which would now be a 120 thousand pounds or 34% of the current value.
Here are some of the ways you can use equity to fund your home improvements:
- Further Advances
A good way to think of its further advance is a top-up of your existing mortgage unlike remortgaging you stick with the same lender and the terms of your original mortgage might not change, however it's likely you'll pay two rates:
The first rate will remain the same as it's based on your existing mortgage repayments and the second will be a different rate on the extra money you borrowed which is usually a smaller amount.
- Further Advance Pros
Unlike remortgaging you don't necessarily have to wait for the right time to borrow more you can keep the same rate on your existing mortgage it can be faster than arranging a remortgage as solicitors are rarely involved.
- Further Advance Cons
It can be confusing juggling two different mortgage rates lenders will underwrite the entire mortgage whilst assessing the further events which means that they may require changes to the retainer method for any interest only element already in place.
Many people take out remortgages as it's another way to use home equity for home improvements, the overall amount that you can borrow will be determined by the amount of equity in your home and the new lenders assessment of your overall affordability.
- Remortgaging Pros
Remortgaging can give you a better rate on your entire mortgage meaning you could pay less or your monthly repayments or it could even apply for a shorter overall term your borrowing would be consolidated on one arrangement making it easier to manage and a further advance where you might have two different rates over two different periods of time.
- Remortgaging Cons
Remortgaging sometimes incurs extra fees like earlier with payment charges or solicitor fees. It can extend the length of your mortgage so you're making repayments for longer the process often takes longer than a further event as is typically involve solicitors and a potential valuation, sometimes remortgaging requires that you give up the low rate you currently have on your mortgage finally secured lending puts your property at risk of repossession.
- Second charge
A second charge is like a second mortgage on your home as you use a different lender second charge are usually more suitable when your existing lender won't let you borrow the amount you need under your current mortgage arrangement.
- Second charge pros
It’s secured to use your home equity which means it has lower rates than an unsecured loan or credit card. You don't risk losing a current low interest rate by remortgaging to new lender you don't have to leave your current lender to have one which means that you can keep your current arrangements in place.
- Second Charge Cons
Like a further advance a second charge means taking on more debt over a longer period, you may find that a second charge is more difficult to take out than your original mortgage particularly if your household income has dropped. Secured lending put your property at risk of repossession and second charges can come with expensive fees you must bear in mind that when it comes to selling your property your main mortgage providers balance will be redeemed first any subsequent secured loans will be redeemed and ordered by your solicitor.
So, that was our guide or finding home improvements.
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