If you are looking to improve your home it can be a costly expense. Things like a single storey extension and a new kitchen could quite easily cost in the region of £30,000, double storey extensions potentially more. Very few people have this amount of money set aside and so you may wish to use the equity in your home to fund the improvements.
We have 2 ways in which we can help with that, below are those options and where each may be beneficial as with anything in this industry there is no single best way to do something and it will come down to your preferences, circumstances and the options available.
Remortgage to pay for home improvements first
The first option is to just do a straight forward mortgage. That could either be a “Further Advance” with your current lender or switching to a new lender and taking the full amount needed. The upside to this is that it is still one mortgage payments, chances are the rate will be better than the secured loan route and only one lot of underwriting.
The downside to this is although the rate may be lower, mortgages tend to be priced based on the LTV, if you are pulling some of the equity out of the property prior to the work being done, then you are likely going to end up in a higher LTV category and so the rate will likely be higher than your current mortgage.
This could be worthwhile if you think the works will take 2 or more years as you have all of the finance needed to complete the work and you know you can make a start on it without needing more money down the line.
Secured Loan to pay for home improvements first
The big downside here is that a secured loan will usually be more expensive in terms of rates and fees.
However there are a few more options in the current climate that have no Early Repayment Charges. The upside to this could be that if you only need the loan for say 6-12 months, once the home improvements have been completed, you can take advantage of the lower LTV and take out a new mortgage to clear the existing mortgage and the new secured loan at a potentially lower rate.
Despite the rate/fees being higher, if it is only for a short term, it may still work out cheaper. The other upside to secured loans is that the criteria tends to be a little more relaxed and underwriting quicker. That can mean if you are under pressure to get the finance in place, it could be a quicker way to do it.
Which is best?
There is no one size fits all approach when it comes to which is the better of the 2. We would need to weigh up what you are trying to achieve against what the costs are and then come up with some options.
The cost can be very similar for the 2 options meaning it would come down to personal preference but there are times where it is significantly more expensive to go with one over the other and so in that case, you may find the cost has a bigger impact on the decision making.
How can Mortgage Success help?
At the time of writing this article, we do not do secured loans directly ourselves. We do however work with a secured loan broker who will be able to provide us some indicative figures to work from when comparing the options. In short that means we can get both options for you and you still only have to speak to one broker. We can lay out the options, discuss the pros and cons of both in more detail and then help you make your application.