Thinking of giving your home a fresh new look? Whether it’s adding an extension, revamping the bathroom, or tackling essential repairs, renovating can breathe new life into your property and even boost its market value.Of course, improvements like these don’t come cheap, which begs the question: how do you cover the costs? In this guide, we’ll explore a range of funding options for home renovations, so you can choose the solution that suits your needs best.
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The Different Ways to Fund Home Improvements
1. Remortgage
One popular option is to remortgage your home, which involves switching your current mortgage for a new one, either with your existing lender (known as a product transfer) or a different provider. By doing so, you may be able to release the equity built up in your property and unlock a lump sum to put towards your renovation plans.This approach can be economical, particularly if you secure a lower interest rate. However, it’s not without its drawbacks. Remortgaging often comes with arrangement fees and legal costs, and extending your loan term could mean paying more in interest over time.2. Increase existing mortgage
Another route is to ask your existing mortgage provider for additional borrowing. If you’re on a favourable interest rate and don’t want the hassle of switching lenders, this could be a straightforward way to access extra funds.The additional amount would still be secured against your home, meaning you have to be sure of your ability to keep up with repayments. Also, be aware that the interest rate on the extra borrowing might not match your current deal as lenders often apply a separate rate to the new portion of the loan.3. Second charge mortgage
A second charge mortgage lets you borrow money using the equity in your home, without changing your current mortgage. Essentially, it’s a separate loan secured against your property, so you’d end up with two mortgages running side by side, each with its own repayment terms.How much you can borrow typically depends on the equity you’ve accumulated. While this can be a useful option if you’re tied into a good deal on your main mortgage, it’s crucial to proceed with caution because second charge loans often come with higher interest rates and increase the total sum secured against your home.4. Home improvement loan
A home improvement loan provides a lump sum that you repay over time through monthly instalments. These loans come in two main forms:- Unsecured loans: With an unsecured loan you can borrow without offering any assets as collateral. Instead, lenders assess your credit history and income to gauge whether you’re a reliable borrower. These loans usually have shorter repayment periods, and may come with higher interest rates compared to secured options.
- Secured loans: A secured loan, on the other hand, is backed by your property. This means you can often borrow a larger amount, sometimes at a lower interest rate, and spread repayments over a longer term. Although, there’s a significant caveat: if you fall behind on repayments, your home could be at risk of repossession.
5. Credit card
For smaller-scale renovations or cosmetic updates, a credit card can offer a quick and flexible way to cover costs. It’s especially useful if you’re funding most of the work yourself and just need a little extra to bridge the gap.Many cards come with interest-free periods on purchases, which can be helpful if you’re confident you’ll repay the balance within that time frame. Yet, if the debt lingers beyond the introductory period, interest charges can mount quickly. Unpaid balances may also have a negative impact on your credit score, so it’s vital to use this option attentively.Should I Get a Loan or Remortgage to Fund Home Improvements?
Remortgaging to pay for home improvements can be a smart move in the right circumstances, but it’s not a one-size-fits-all solution.If you’ve accrued decent equity in your property and can access a competitive loan-to-value rate, remortgaging might allow you to borrow at a lower interest rate than a standard personal loan. Another advantage is the ability to spread the cost over the full term of your mortgage, which can make monthly repayments more manageable.That said, there are trade-offs. Extending your mortgage means you could pay more in interest over time, and since the loan is secured against your home, missed payments put your property at risk. It’s also worth timing your remortgage correctly as switching before the end of a fixed-rate period could trigger a hefty early repayment charge.Finally, if your main aim is to add value to your home, it’s essential to weigh up whether the planned improvements will genuinely increase its market worth.How Can I Reduce Home Improvement Costs?
It’s easy for renovation expenses to spiral if you’re not careful, and if the final bill exceeds your borrowing limit then it can put serious strain on your finances. There are a few practical steps you can take to keep things under control:- Set a realistic budget (with a buffer): Decide how much you’re prepared to spend before the work begins, and always include a contingency given that unexpected costs are almost inevitable. A common rule of thumb is to allow an extra 10% for unforeseen issues.
- Get multiple quotes: If you’re hiring contractors, don’t settle for the first quote you receive. Ask for itemised estimates from at least three reputable tradespeople, so you can compare prices, check for hidden costs, and choose the best value for money.
- Choose the most cost-effective funding option: Not all borrowing methods are created equal. Revisit the options we’ve covered and work out the full cost of each, including interest, fees, and repayment terms, to find the choice which fits your specific financial situation.