Remortgage for home improvements
If you’re dreaming of revamping your kitchen, upgrading your bathroom or sprucing up a tired-looking garden, you may be able to release funds from your home to pay for the work.
Remortgaging for home improvements is an increasingly popular option for homeowners who need to raise extra capital to enhance their living space. With currently high property prices, it’s sometimes more cost-effective to improve or extend a home than moving – but finding the money to finance large-scale renovations can be stressful.
In many cases, borrowers can add to their mortgage to fund home improvements. This involves taking out a new loan with their existing or a new mortgage provider and subsequently releasing some of the equity already achieved in the property.
Lenders will rarely let you take all the equity out of your home, but as long as you can prove that the revised mortgage payments are still affordable for the duration of your new mortgage term, you should be able to release a substantial amount to make those essential changes.
How does remortgaging to borrow more money work?
Lenders aren't always inclined to add to their borrowers' mortgage loans. However, there are exceptions where approval is more likely. Adding to the value of the property is one such area. Releasing additional funds for home improvements is often seen as a good step as long as the work does increase the property value.
Depending on your personal circumstances, you might be able to borrow against a new higher salary, a joint income or, as mentioned, against the equity built into your property since the beginning of the initial loan. How much equity you hold will depend on your loan-to-value ratio and how much you've paid into your mortgage since you started.
When you remortgage, you effectively take out a brand-new mortgage. The new mortgage is used to pay off the original loan and any early repayment charges. Once that's taken care of, you make the agreed monthly repayments to your new mortgage provider.
Why might a personal loan be a better option than remortgaging?
Depending on how much money you'd like to borrow, it's well worth comparing interest rates for personal loans against those you could achieve on a mortgage. Additionally, the term of your mortgage or fixed-rate period could leave you worse off than a simple home improvement personal loan.
If you're looking to spruce up your home with some minor additions or redecorating throughout could well be better funded by a short-term loan.
Adding value to a home usually means adding rooms or square footage by extending a property, converting an attic space, or making renovations that modernise outdated kitchens, bathrooms, and energy efficient improvements to windows and heating systems.
If you have to release equity to make your improvements or renovations, be sure that the figures add up, and you won't struggle compared to your current mortgage.
Another situation to consider is what happens if property prices fall. Many homeowners have found themselves worse off when the market changes, and the additional borrowing turns out to be more than the new updated value in their home.
There are plenty of opportunities where adding to your existing mortgage or taking out a remortgage for home improvements will be a great move, adding value to your property with manageable monthly mortgage payments, and improving your quality of life at the same time.
Why might remortgaging to make home improvements be a bad idea?
The first and most obvious reason is if you'll be stretching yourself financially. If you're only borrowing against your mortgage because you can't find the funds any other way, you need to ask yourself if you'll be able to meet your new repayments comfortably. Or if, by extending the term of your mortgage, you'll be creating problems for yourself further down the line.
Buying yourself out early can come with extensive additional costs if you're in the middle of a fixed-rate mortgage deal term. If you are mid-deal, it's worth talking to your existing lender to see if they'll add to the capital without any charges.
If you can wait until the fixed-rate term completes, you'll be in a far better position to explore the market. However, even by waiting a fixed-rate term out, you may still be liable to early repayment charges that make remortgaging to the wrong deal less than cost conscious.
Another reason to reconsider remortgaging for home improvements is if the renovation only adds to the property's short-term value. For example, if you think updating your property will help you sell a property when you're hoping to move home, consider how much it will bring in compared to how much it will cost. You could end up out of pocket.
CLS – the expert mortgage brokers
If you don’t need a cash lump sum straight away but are keen to lower your mortgage rates to save money towards upcoming works, it could also make sense to remortgage (either with your existing provider or a different one). The team at CLS Money have access to competitive mortgage products from a wide range of lenders and will work with you closely to find a deal that allows you to realise your home improvement dreams without overstretching your finances.