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Loans, Mortgages, Remortgages for Home Owners – Your Guide to financing home improvements

Your home – whether it’s a flat, house, mansion or castle – is likely to be the single biggest investment you ever make. To maintain and improve the value of that investment often calls for additional financial outlay.

Relatively small maintenance projects can often be financed out of your earnings. However, unless you are in the fortunate position of having substantial savings – or a wealthy relative or large inheritance! – you will probably have to borrow any money needed to fund larger improvements. These might include installing double glazing, adding a conservatory or extension, building a garage or converting the loft.

These days’ lenders are falling over themselves to provide money for home improvements (and most other consumer desires). If you need to borrow there are three main sources of funding:

• Specialist loan companies
• Building societies
• Banks

The method you choose will depend on your needs, your circumstances, your personal preferences and your financial track record.

Specialist Loan Companies

Depending on the project being financed, you may be encouraged down this route by the supplier – if you are installing a kitchen, for example, you may be offered loan facilities by the retailer. This is an easy option but you may get a better rate by approaching a loan company direct. You can compare home improvement loans and rates here.

Why a loan company?

• If funds permit, you have the option of paying off the loan more quickly than might be possible with a mortgage (unless it is a flexible mortgage).
• When your mortgage lender is unable to offer you additional funds.

Why not?

• Personal loans are usually more expensive because they are not secured against your property. Therefore you could end up paying two or three percent more interest than for a mortgage.

However…

• If you repay this loan within a few years, though, the total cost could be significantly lower than adding it to your mortgage since this involves paying interest on the loan for many years.

Building Societies

Why a building society?

• You require a very large sum of money to fund your project – increasing your mortgage will probably prove to be the most cost-effective route as home loans are almost always cheaper than other forms of finance.
• The amount you require conforms to building society guidelines regarding proportion size of loan and salary.
• Your total loan will not exceed the value of the property after the work has been completed. This is unlikely to present a problem if you have significant equity (estimate this figure by subtracting the mortgage from the value of the property).

Why not?

• An increase in mortgage (or a second mortgage) is often charged at a higher rate than the original.

However…

• If you are able to budget for improvements before you buy the property you will avoid extending the mortgage at a later date. Note that a flexible mortgage allows you to draw down funds only when needed.

Banks

If you have your mortgage through your bank then the guidelines in the building society section apply equally to your bank mortgage.

The other option is to negotiate or increase an overdraft. 

Why a bank overdraft?

• You need a relatively small amount and aim to pay off the loan in a short period.
• You have your mortgage through the bank and this is a cheaper option than extending your mortgage.

Why not?

• Like a personal loan, this can be a more expensive option as it is not secured against your property.

However…

• If you repay this loan within a few years, though, the total cost could be significantly lower than paying it off as part of your mortgage since this involves paying interest on the loan for many years.

IMPORTANT

1) Whatever your source of funding it is vital to gain the approval of your mortgage lender before carrying out any structural alterations to your property. This includes any projects that could undermine the integrity of the property – for example, removing walls or installing new staircases. It is wise to check with your mortgage lender if you are unsure whether your planned improvements fall within this category.

2) This feature is intended to provide general personal financial information only. The information does not constitute regulated financial advice, which recommends a course of action based upon the specifics of an individual’s personal circumstances. You are advised to consult an Independent Financial Adviser (IFA) before making any important decisions about your finances. Look in your local Yellow Pages or go to www.unbiased.co.uk for a list of IFAs in your area.

YOUR HOME IS AT RISK IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR OTHER LOAN SECURED ON IT.