Remortgage for Home Improvements - Is It Worth It?
Want to make more energy efficient improvements given the cost of living crisis? Or simply want to add a bedroom or begin your loft conversion project? If you're thinking about making some improvements to your home, you might be wondering where you can find the money to fund them. One option that you might have heard of is remortgaging.
In this blog, we'll take a look at how remortgaging can allow you to fund home improvements, the advantages of using a remortgage for this purpose, the potential risks and downsides, and some tips to help you make the most of the process.
What is the Remortgaging Process?
When you decide to remortgage, you're essentially taking out a new mortgage on your property to replace your existing one. The process typically involves shopping around for a better deal, applying, and paying off your existing mortgage with the proceeds from the new one. You can remortgage with your current lender or a new mortgage lender.
To start the process, you'll need to assess your financial situation and make sure that remortgaging is the right choice for you. This might involve looking at your credit history, income, and any other debts or financial obligations you have. Once you've decided to remortgage, you should shop around for the best deals and compare rates from different lenders, including your existing lender.
When you've found a suitable mortgage deal, you'll need to apply for the mortgage and provide the lender with the necessary documentation and information. This can include proof of income, bank statements, and details about your existing mortgage.
Once you've been approved, the lender will provide you with the funds to pay off your existing mortgage and any additional funds you've borrowed. From there, you'll start making monthly payments.
How Does Remortgaging Allow You to Fund Home Improvements?
Let's say you've owned your home for a few years and have been making regular mortgage payments. During this time, the value of your property has increased, and you now have a significant amount of equity in your home. If you decide to remortgage, you could borrow additional funds against this equity to pay for home improvements.
For instance, you might decide to use the funds to build an extension on your home. This could include adding a new bedroom, creating a larger living space, or building a home office. With the additional funds from your remortgage, you could hire a contractor to carry out the work, purchase materials and furnishings, and cover any other associated costs.
Alternatively, you might choose to use the funds to renovate your kitchen or bathroom. This could include installing new cabinets, countertops, and appliances, or upgrading your plumbing and fixtures. With the extra funds, you could afford higher-quality materials and more extensive renovations than you might otherwise be able to.
By using a remortgage to fund your home improvements, you're essentially leveraging the equity in your home to access additional funds. This can be a smart way to finance renovations or upgrades that could increase the value of your property and improve your quality of life.
Advantages of Using a Remortgage for Home Improvements
There are several advantages to using a remortgage to fund home improvements:
Lower Interest Rates
One of the biggest advantages of remortgaging to fund home improvements is the potential to secure a lower interest rate on your mortgage. If you have a good credit score and a decent amount of equity in your home, you may be able to negotiate a lower interest rate than you would with other forms of borrowing, such as a personal loan or credit card. Paying lower interest can save you money over the life of your mortgage and reduce the overall cost of your home improvements.
More Affordable Monthly Repayments
By extending the term of your mortgage, you can spread the cost of your home improvements over a longer period of time, which can make your monthly payments more affordable. This can be especially useful if you're on a tight budget and don't have the funds to pay for home improvements all at once.
By taking a longer-term mortgage, you can spread the cost of the improvements over several years and make smaller, more manageable monthly payments.
Increase Your Property Value
Another advantage of using a remortgage to fund home improvements is that you can increase the value of your property. Home improvements can make your home more attractive to potential buyers, which can increase its value and help you to recoup some or all of the cost of your remortgage when you come to sell your home.
For instance, if you add an extra bedroom, install a new kitchen, or create a home office, these improvements could make your home more appealing to buyers and increase its overall value.
Disadvantages of Using a Remortgage for Home Improvements
There are some potential risks and downsides to using a remortgage to fund home improvements. Some of these include:
When you remortgage to fund home improvements, you're essentially taking on additional debt. This means that you'll have to pay back more money over a longer period of time. While spreading the cost of your home improvements over a longer period can make your monthly payments more affordable, it also means that you'll be paying more in interest over the life of your mortgage.
It's important to consider whether you can afford to take on this additional debt and whether you have a clear plan for repaying your mortgage.
Remortgaging can be a risky option if you're unable to keep up with your monthly mortgage payments. If you fall behind on your payments, you could risk losing your home to repossession.
Before you decide to remortgage, it's important to make sure that you have a clear plan for repaying your mortgage and that you're confident that you can meet your monthly repayments to fund your home improvement project .
Fees and Charges
Remortgaging can come with fees and charges, such as arrangement fees, valuation fees, and legal fees. These costs can add up and increase the total cost of your home improvements. It's important to factor in these fees and charges when calculating the cost of your remortgage and to shop around to find the best deal.
You may also want to consider whether it's worth paying these fees and charges in order to secure a lower interest rate or more affordable monthly payments.
Tips for Home Improvements
Shopping around and comparing rates and terms from different lenders is crucial when it comes to remortgaging for home improvements. It's important to make sure that you're getting the best possible deal to ensure that you're not paying more than necessary for your loan.
This can involve reaching out to different lenders, comparing interest rates and terms, and considering any potential fees or charges that may be associated with the remortgage.
Consider the Total Cost
When comparing remortgage deals, it's essential to consider the total cost of the loan. Interest rates are obviously an important factor, but fees and charges can quickly add up and make the total cost of the loan more expensive.
These can include arrangement fees, valuation fees, legal fees, and other charges that may be associated with the remortgage. Make sure you factor these in when comparing deals to get an accurate sense of the total cost of each loan.
Have a Clear Plan
It's important to have a clear plan for your home improvements, depending on your personal circumstances. This will help you to ensure that you're borrowing the right amount of money and that you're spending it wisely.
Having a plan can also help you to identify any potential issues or challenges that may arise during the home improvement process, and prepare accordingly.
If your finances do not allow you to borrow money to fund renovations, then it may be a bad idea for you at the moment. We also recommend speaking to specialist lenders or a financial advisor.
Do not overextend yourself
While it can be tempting to borrow as much as possible to fund your renovations, taking on too much debt can put you in a precarious financial position. Make sure that you can comfortably afford the monthly payments on your remortgage and that you're not stretching your budget too thin.
It's important to weigh up the potential risks and downsides of remortgaging for home improvements against the potential benefits.
If you're confident that you can afford to take on additional debt, have a clear plan for repaying your mortgage, and have factored in any fees and charges, then remortgaging could be a good option for funding your home improvements.
However, if you're unsure about the risks involved and are not happy with your financial circumstances, you may want to consider alternative options, such as taking out a personal loan or saving up for your home improvements over time, avoiding additional borrowing.