Can You Use Your Mortgage for Home Improvement?

Home improvement is undoubtedly expensive, especially if you look at a grand level. When you buy a new house, you may see a scope to invest a lot of money in renovating your house. However, it does not seem to be to have borrowed money to refurbish your house.

When you take out a mortgage, it is worth the value of your home minus the deposit you put down. “It is impossible for a mortgage provider to lend you money on top of the mortgage.” But you can borrow extra money on your mortgage sometime later.

“When you take out a mortgage, you are usually put on a fixed-interest rate deal for a limited time, with 2 years or 5 years.” After the end of the fixed period deal, you are put on a standard variable interest rate. “It means the interest rate will change as the base rate by the Bank of England goes up and down.”

When you are closer to the end of the fixed period deal, you have an opportunity to remortgage to avail of lower interest rates. Remortgaging is particularly beneficial when you too out a bad credit with no deposit mortgage.

How a remortgage allows you to borrow for your home improvement

“At the time of remortgaging, you are more likely to have built equity and have already paid off a portion of your existing mortgage.” So, you have a better chance of borrowing more money this time. Look at the following example to understand how it works:

  • Assume you took out a mortgage worth £200,000
  • You have paid off £50,000.
  • You have built equity in your house up to worth £20,000.
  • You will be able to borrow £150,000 (current outstanding balance) + £20,000.
  • Now you can use additional borrowing worth £20,000 for your home improvement project.

Factors to look at before deciding on remortgage

“With the help of a remortgage, you will be able to use extra money to renovate your house, but there are some factors that you must consider before making a decision.”

You will end up owing more money

A remortgage cannot be the best bet as it adds up to the size of the loan. This is not a small loan that you will get rid of too soon. You will have to understand its impact on the future. Your financial situation can be drastically ruined. Consequences are bad when you fail to keep up with payments.

A remortgage can allow you to borrow money at a lower interest rate only when you have a good credit history. However, you will end up paying more money in total. You should carefully examine if it makes sense to borrow more at the time of remortgaging.

If you cannot make a decision, you should contact a mortgage broker. Do proper research to find the best mortgage broker online.

Early repayment charges

A remortgage means taking out a new mortgage to replace the existing one. The new mortgage will be used toward the settlement of your current mortgage. As you are paying it off early, you will end up repaying early repayment fees. It will not cost you too much money when you are at the end of a fixed-period deal. Yet, it is an expense. You cannot ignore it.

However, under some circumstances, you can avoid this fee. You should read all the clauses in the agreement carefully.

The reason you are renovating for

“Although it seems a good idea to borrow money to renovate your house, there is no guarantee that all expenses will fit in your budget.” Minor work is fine, but you should try to take up a big project. The increased cost may push your savings to the point of exhaustion.

Borrow more with your current mortgage

It is not necessary to remortgage to borrow more money to do up your house. Chances are your current mortgage is offering you better interest rates, and you want to stay with it.

Your mortgage provider may lend you more money, but it depends on the following factors:

  • How much loan you have already paid off.
  • Has your house got some equity?
  • How strong your credit score is.

Do not forget that the interest rates will differ for the top-up as it depends on your current circumstances.

What are the alternatives?

“If you are looking to renovate your house, there are various other alternatives you can seek.” Do not just rely on your mortgage. Here are the options that will be more helpful, and the best part about these alternatives is they will cost you a lower interest rate.

Credit cards

They can come in handy when you need money for small improvements. However, your credit card must have that limit. You can avoid paying interest if you pay back the whole sum within the grace-free period.

If your credit card allows you to pay off the balance in instalments, you can think of taking up a big project.

A personal loan

You can take out a personal loan. You do not need to secure them against your house or any other valuable assets. These loans are ideally good when you need a large sum of money for home improvement. These loans are also known as home improvement loans.

They can be slightly expensive as they carry high-interest rates. In case of a poor credit rating, the rate of interest can be even higher.

The bottom line

“You will have to borrow more money on your current mortgage to get your house refurbished, or you will have to take out a remortgage.” They both have pros and cons, so make sure you carefully understand the benefits and risks. You can seek help from a mortgage broker. They will guide you on which option suits you best based on your financial condition. Do proper research before choosing a mortgage broker.

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