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Should you remortgage to make home improvements
🕑 5 minute read
Remortgaging to fund home improvements
From raising the value of your property to giving your family more space, there are lots of reasons to renovate. You could have a new bathroom in your plans, or you want to create the kitchen of your dreams.
But how to pay for it? Remortgaging is one method of borrowing money, while getting a new mortgage deal with a different lender.
Can you remortgage to pay for home improvements?
There are two possible options available if you want to remortgage for home improvements.
Both of these choices can increase the cost of your repayments and may be expensive, so it’s essential to think carefully and seek impartial financial advice before making a decision.
Remortgaging
So, you’ve priced up the work you want. Let’s assume that’s a beautiful new bathroom, the total renovation costs £15,000, and you want to borrow that entire sum. If you decide to remortgage to raise the money, you’ll get a new mortgage deal with a new lender. As part of this deal, you may be able to borrow extra money.
For example, if you have a mortgage of £140,000, and the bathroom will cost £15,000, you could apply for additional borrowing, and take out a mortgage for £155,000. You can then use £15,000 on the bathroom renovation.
Borrowing additional money on a new mortgage deal is a long-term commitment, as you’ll be repaying this money back over the full term of the mortgage – including interest.
Borrow more with your mortgage
If you already have reasonable interest rates or want to stay with your current mortgage provider, they may consider lending you more money. This may depend on how much of your mortgage you’ve paid off, or if your home has risen significantly in value.
It’s important to note that the interest rate could be different on the additional amount borrowed, and as with remortgaging, it will be secured against your home.
Considerations before remortgaging to pay for home improvements
You'll owe more on your mortgage
Owing more on your mortgage may not seem like a big deal in the short term, but you should think about the future, too.
If you were to have less money for any reason – job loss, fewer working hours, a new family – this may affect your ability to keep up to bigger mortgage repayments. When you consider borrowing, think about how this will impact the amount you owe to your mortgage lender. You’ll pay interest on the amount you borrow too, so it’s not just the capital you’re borrowing.
Early repayment charges
Early repayment charges aren’t an insignificant fee, and in most circumstances you’ll want to avoid paying one. When you’re remortgaging, making sure you’re not tied to a current mortgage deal could mean you’re able to avoid paying one. Read your mortgage agreement carefully to check.
Renovate for the right reasons
While it may seem like a good idea, renovating to improve the value of your home before a sale isn’t guaranteed to work. You could end up paying more for the work than the value it adds to your property. A good way around this is to consider what types of improvements add the most value for the work required.
Turning cellars into living spaces, converting garages into useable space, updating your bathroom tend to be good options for adding value to a home.
Increasing your kerb appeal with minor work on the front of the house can be a cheaper way to improve your home’s value. Research the market, or seek advice, before carrying out major building work.
Alternatives to remortgaging
Remortgaging isn’t the only way to borrow money for home improvements. Depending on the size of the renovations, there may be other ways to get the cash you need.
Credit card
Using a credit card to pay for home improvements can be useful, as certain purchases made with a credit card are likely to be protected under S75 of the Consumer Credit Act 1974 if something goes wrong.
You need to remember though that unless there’s a promotional 0% rate on purchases on your account, you’ll pay interest unless you clear the full balance every month.
Savings
The safest option will always be to use your savings. There’s one obvious downside – you’ll have to wait until you’ve got enough in your account to carry out the work.
If your improvements aren’t urgent, tightly saving for even a few months can make a huge difference.
Personal loan
Personal loans can be an option for paying for home improvements.
You’ll borrow a set amount of money for an agreed term, paying back a chunk of the lump sum, plus interest, each month.
Only take out a loan if you are confident then you’ll be able to afford the monthly repayments comfortably.