Home Improvement Loans And Mortgages

Being a property owner undoubtedly has its benefits, but it also has its responsibilities. Sometimes, your home desperately needs maintenance, or perhaps you wish to install a new kitchen or bathroom. If the matter is urgent and you don’t have any money put by for home improvements, then the only solution is to borrow the money. In this article we look at:

  • If you can add a home improvement loan to your mortgage
  • How to add a home improvement loan to your mortgage
  • How long home improvement loans are

Can I add an improvement loan to my mortgage?

Also known as a further advance, a home improvement loan can be added to your mortgage and involves cashing in some of your equity (the amount you have already repaid to the lender in your monthly mortgage instalments). The main difference between a further advance and remortgaging is that with a further advance, you borrow from the lender who gave you your original mortgage. However, this doesn’t necessarily mean that your further advance will have the same interest rate as your previous mortgage.

Home improvement loans are added to your mortgage by cashing in equity

Before applying for a further advance, there are a number of factors you need to consider. The first is that you should make sure you have a healthy credit score. This application for further funding is treated like a new mortgage so your credit rating and your pre-existing levels of debt will be taken into account.

You should also evaluate the affordability of further borrowing. You should use a budgeting tool/planner to make sure that you will be able to repay the borrowing without it affecting your lifestyle. If your circumstances have changed (for example, your salary has decreased), you may find you are no longer eligible. Finally, you should ensure that you have sufficient equity in the property. Lenders usually demand that your LTV is at least 80-85%.

Questions on home improvement loans

How do home renovation loans work?

A home improvement or home renovation loan allows a borrower to take out a loan with the purpose to upgrade or repair their house. Some financing options, depending on the amount that is needed by the borrower to renovate their home, are remortgaging the house or taking out a smaller, personal loan. It is crucial to borrow as much as necessary and not more, in order to keep the loan amount and subsequent payments as low as possible.

Do banks give home improvement loans?

Some banks may offer specialised home improvement loans to fund your home renovation and repair. These types of loans are normally unsecured loans that can apply for expect to be authorised based on your creditworthiness. You may apply for these types of loans from a variety of lenders, such as credit unions, online lenders, or banks.

What is the best way to borrow money for home improvements?

Some of the best ways to fund your home improvements or repairs are via a loan that is particularly suitable to your needs. Depending on the desired loan amount, remortgaging may be the best option, as is a home equity loan in a similar way. For lower loan amounts, a personal loan or credit card may suffice. Finally, the cheapest way to finance would be to save up and pay cash for your home renovations and repairs.

How can I add an improvement loan to my mortgage?

Your first step is to contact your mortgage lender. Usually, lenders require you to have had your current mortgage for at least 6 months and also might have a minimum amount you can borrow in this way (usually £5,000).

A man is shown working on a home improvement project

Apart from assessing affordability, they will carry out a stress test to ensure that further borrowing would still be affordable if interest rates rose and/or your circumstances changed.
Your lender might also require to see proof of the purpose of further lending such as a builder’s estimates. In order to check the accuracy of your LTV, your mortgage provider might arrange for your property to be re-evaluated.

During the application procedure, you should ask whether you will have to borrow for the entire length of your mortgage term, or whether this home improvement loan can have a shorter term. A longer term might seem appealing because repayments are lower, but you will end up repaying more. Finally, you should enquire about all arrangement fees and the final cost of the loan.

How long are home improvement loans?

The length of home improvement loans varies, and often you can specify how long you want the term to be. Depending on the amount you have borrowed, they are usually anything from 1 to 7 years.

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