A mortgage is a loan secured against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it. You may have to pay an early repayment charge to your existing lender when you remortgage.
Renovating your home can add value to your property and create the house of your dreams.
And it can be a lot cheaper than moving home.
With the current uncertainties in the economy and in the property market, many people choose to renovate their home rather than moving.
A remortgage can be a cost-effective way to raise money to fund projects such as a new kitchen, a new bathroom, an extension, a new garden office. Or things like: home insulation, solar panels, or general redecorations,….and the list could go on.
If you are looking to make some home improvements, you may be wondering how to finance them. One option is to remortgage your property with the help of a remortgage broker london, who can find you the best deal and save you money in the long run.
Please remember that a mortgage is a loan secured against your home. Your home may be repossessed if you do not maintain repayments on your mortgage or any other load secured against it. You may have to pay an early repayment charge to your existing lender when you remortgage. And always a good idea to speak with an experienced mortgage broker who can talk you through the process, and understand the options and what they will mean for you.
Plan ahead before you start
First, you will need an estimate for you home improvement project; and get quotes from a builder or quotation for materials.
Once you have a budget in mind, you may explore the options for how to fund your project.
Broadly speaking, there are two types of finance that you may consider.
The first, is unsecured debt, which are things like personal loans and credit cards.
The second is secured debt, which are things like a mortgage, a further advance or a second charge. We will talk more about secured debt later.
Personal loans are typically for a period from 1 to 7 years, thus you would need to pay off the debt in a relatively short period of time. And credit cards may end up charging you high interest rates.
A secured debt like a mortgage, will typically have a cheaper rate of interest, and it will be over a longer term, which means your monthly repayments would typically be less.
With a secure debt you can take equity out of your home. Let’s take a look at how you can do this.
How can I take equity out of my home?
To take equity out of your home:
First you want to get a realistic valuation of your property. Talk to local estate agents or do a search on property websites.
Secondly, check your current mortgage balance outstanding, so that you can work out how much equity you have in your home.
The equity is the difference between the value of your home and your current mortgager balance. You may be able to release some of this equity into cash to pay for your home improvements, via a mortgage or a secured loan.
Example – how to release some of your home equity into cash
To keep the numbers simple, let’s say that the property value is £100,000. And that your current mortgage is £60,000. This means that the loan to value, or LTV, is 60%.
Let’s say that you will now remortgage, and that you will get a new bigger mortgage up to 90% LTV, which is the maximum LTV that the mortgage lender would allow in your scenario. The new mortgage will therefore be £90,000.
The difference of £30,000, between your new mortgage of £90,000, and your old mortgage of £60,000, will be the cash that will be released back to you to pay for your home improvement.
Lenders will typically let you remortgage up to 90% LTV for home improvements. Some lenders may still let you go up to 95% LTV.
Please remember that lending criteria change regularly, and a mortgage broker can point you in the right direction.
There are 3 main options to take out a secured loan on your property
The first option is a Further advance. With this option you stick with the same lender.
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- Your existing mortgage will remain in place, and it will stay on your current rate and terms.
- The further advance will have its own new different rate and a different end-date.
- It is generally faster than remortgaging, as solicitors are rarely involved.
- A further advance could be a good option if you are still on your exiting initial deal period with your current mortgage; so with a further advance you do not pay an early redemption charge on your existing deal.
- However, it can be confusing to have two mortgage rates, one for the main mortgage and one for the further advance. And you my miss out on better rate that may be on offer from a different lender.
The second option is to Remortgage to a new lender.
- With a remortgage you will have one arrangement only, with one rate over one period of time; unlike with the further advance option.
- However, with a remortgage there may be more fees involved; and it can take longer than further advance as the new lender may carry out a valuation of your property, and a solicitor will be involved.
- Remortgaging can make sense if the new mortgage on offer by a new lender is overall more attractive, once you take into account the new product rates and all fees involved.
The third option is a Second charge.
- With this option you Borrow money with another lender for just the amount that you need for the home improvements.
- Your current mortgage will continue with the existing lender, so if you are still on an initial rate deal with them you will not loose it.
- Second charge will also require a valuation and a solicitor will be involved.
- You will also need to budget for fees, that can all add up.
Please remember that if you raise additional money on your home, whether it be via a remortgage or further advance or second charge, your monthly payment will typically go up. Also remember that you will pay interest on the additional money that you borrow, for the whole term of the new loan that you will take.
Will I get approved for a home improvement remortgage?
The assessment for your home improvement loan, whether this is a further advance, or a remortgage, or a second charge, will be based on similar principles as doing a mortgage.
First, the lender will assess your affordability. Your new loan must be affordable, and thus the amount that you can borrow will be capped based on your earnings and outgoings.
Secondly, you will need to meet the lender credit scoring. If you have a good credit history, there is generally nothing to fear. If your credit score is less than perfect, however, you may find that not all lenders may consider you and you are best to speak to a broker for guidance.
Also lending criteria and eligibility requirements regularly change, based on the state of the economy and of the property market.
How can Your Mortgage Experts help?
Your Mortgage Experts have plenty of experience in helping people raise the money they need for home improvements. They will guide you through the range of available options, discuss your affordability, review which lenders will let you maximise the amount that you can borrow, and review the mortgage product rates that are most cost effective from an extensive range of market offering.
They will also prepare you to ensure the best chances of success with your remortgage application.
Contact us today on 020 8154 1111 to speak with an advisor or drop us a question hello@yourmortgageexperts.co.uk
Luca Bertolino
Mortgage ExpertYour Mortgage Experts is led by Luca Bertolino with 20 years experience in financial services and in the property market. Through Luca’s wealth of knowledge and expertise, Your Mortgage Experts have become a trusted adviser that clients have come to rely upon for all their mortgage and protection needs.
