You can either fund your home improvement project:
- with cash
- by increasing your mortgage to release funds, or
- by taking out a home improvement loan.
Re-mortgaging will usually offer the cheapest rates, but shop around for the best deal. Switching mortgages at this time can present you with the opportunity save you money and help reduce the impact of the extended or bigger mortgage.
You will need to prove you can afford the bigger mortgage and will need sufficient spare equity in the property to raise capital. It’s important to factor in any switching costs as well but many deals will offer a free valuation and free legal work for remortgages, which helps to cut set up fees.
Speak to your lender about your options. But also speak to a mortgage broker who can scan the whole market and find the best deal for you.
If you already have a really good rate that you don’t want to lose or are tied into a deal with early repayment charges, you could consider additional borrowing from your existing mortgage provider. The rates may not be quite as keen and there could still be fees but it could work out to be the cheapest overall package.
Lenders will ask the reason for raising capital but should allow equity to be released for the purpose of home improvements.
Mortgage rates vary depending on the percentage of the property your mortgage represents, known as Loan to Value or LTV. Lenders will limit the LTV to which they will allow capital to be raised for home improvements, typically to 85% or 90% of the property value. That will be based on the current property value and not a predicted value after completion of the work.
Bear in mind that the higher the LTV, the higher the interest rate will be. Of course, you can review the rate once any deal has come to an end. If the improvements have added value then there may also be an improvement in the LTV which should, in turn, improve the mortgage options.
Another option could be a secured loan¸ unsecured personal loan or even a credit card, depending on the sums required, from another provider. However, these will usually carry higher interest rates.