6 Options For Funding Home Improvements

If you’ve bought an older property that needs a lot of work done or you’ve just decided that it’s time for a change, you might be in the process of planning big home renovations. Before you get carried away with your designs, you need to work out how you’re going to pay for it all. If you’re just making small cosmetic changes you may be able to afford them quite easily. But if you’re doing anything big like making structural changes or adding an extension, you may not be likely to have that kind of money lying around. You could always put your renovation plans on the back burner until you can save up the money but that’s not always possible, especially if the house isn’t fit to live in.  Luckily, there are plenty of different options for homeowners that are looking to do work on their homes. These are the best ways to pay for those big home renovations so they won’t break the bank.*

Choose Sensible Renovations

Before we look at the different ways that you can source the money, it’s worth considering the type of renovations that you’re considering. Some renovations will add value to your property, while others won’t. In some cases, they might actually decrease the value of the property, for example, if you’re creating spaces in the home that are very specific to your lifestyle, other people might not want their home set up that way and the property value will drop.

Things like adding an extension, creating an open plan living room and kitchen, and updating the windows and doors will all increase the value of your property. That makes it easier to fund those renovations because, although you’re still borrowing the money, you’re earning it back in the form of increased property value. But if you’re making changes that don’t add value or even diminish the value of the house, all of the money that you borrowed is lost. It’s worth keeping this in mind when you’re planning any home renovations.

If you’re confident that you’ve made good choices when it comes to home renovations, you can start thinking about where you’re going to find the money. These are some of the best ways to do it.

Remortgage The House

The most efficient way of borrowing money for home renovations is a remortgage, but it’s not always the best choice. It’s the cheapest form of borrowing in terms of monthly repayments and you can usually get a larger amount than most other borrowing options. However, you will need to prove that you’ve got a big enough income to pay off all of the monthly repayments comfortably. If you’re nearing the end of your mortgage and you don’t have a huge amount to pay, this is a good option for you. It’ll extend your mortgage and you’ll be paying it for a little while longer, but that’s fine for somebody in your position. But if you’re a long way off paying the mortgage back in full, adding more money onto that debt isn’t always the most sensible thing to do, especially if it means that your monthly repayments are going to be more than you can realistically afford.

If you’re considering a remortgage, you need to shop around and find the best deal that you can. Get in touch with a good mortgage broker like Altrua Financial and get some advice on how much money you are likely to be able to borrow. It’s important that you price up the renovations and work out roughly how much you need to borrow before you do this. Otherwise, you’ll be a lot more likely to take the maximum amount that you’re offered just because it’s there. This is just getting you into more debt for no reason. Go in with a clear idea of what you need and don’t borrow any more than that.

When you’re applying for a second mortgage for home improvements, they’ll consider your credit rating and how much value the improvements are likely to add to the home so make sure that you’ve cleared any debts and thought properly about what kind of renovations you want to do. If you don’t, you might not be able to borrow that much money.

Home Improvement Loans

If you don’t think that a remortgage is the right choice for you or you’re struggling to get a good rate on a second mortgage, your next option is home improvement loans. There are 2 main types of home improvement loans; secured and unsecured loans. When you get a secured loan, you put the house up as collateral in case you cannot afford to make the repayments. This is basically the same as getting a second mortgage and you’ll have to go through the same credit checks etc. Most banks will give you up to $500,000 depending on what work you want to do and the repayment periods extend up to 25 years.

You can also get an unsecured home improvement loan but you won’t be able to borrow anywhere near as much. You won’t be likely to get more than $25,000 on an unsecured loan which is fine or smaller projects. The repayment period tends to be quite a bit shorter as well so be prepared for that.

If you’re considering a secured loan, just be very careful. Your house is up for collateral so you should only take this option if you’re absolutely sure that you can make the repayments comfortably every single month. If there is any doubt about that, it’s not advisable to take out a loan against your home.

Bridging Loan

A bridging loan is a short term loan that you take out while you sort out long term finance like a second mortgage or a home improvement loan. As a general rule, you shouldn’t need to do this if you’re just making changes to your home. You can just wait until you’ve sorted out long term finance before you start the project. However, if you need to do some emergency work on your house like fixing the roof, for example, a bridging loan is a good way to get the money that you need quickly. Just be aware that the interest rates on these loans are usually about 1.5 percent which is a lot higher than your other loan options. The admin fees around bridging loans are also a lot higher than any other form of loan so make sure that you factor that in.

Personal Loans

If you don’t have the assets to back up a secured loan or your credit rating isn’t ideal, you might need to go for a personal loan instead. You’ll still struggle to get a good rate on a loan with a bad credit rating but you might find that you’ve got more options. A personal loan is a smaller loan that you can take out from the bank, usually for anything up to $25,000 depending on your situation. The interest rates depend on how much you borrow and how quickly you pay them back but they’re usually going to be quite a bit higher than any other loans. The best interest rates are on the mid range loans between $7,500 and $15,000 that you’ll pay back over 3 to 5 years.

Extended Overdraft

Extended overdraft borrowing is an option for borrowing but you should only use it in certain circumstances. You’ll probably only get a few thousand from the bank and the interest rates are not going to be very competitive. It’s a fine way to pay for small renovations that you’ll be able to pay back in a couple of months because you won’t be hit by the big interest payments. But you don’t want to max out your overdraft and then pay it back over a couple of years because you can easily get stuck in a cycle. If you go past your overdraft limit, often because of the interest payments, you’ll end up with hefty charges which then push you further past the limit. Then you’re trapped in a cycle that is hard to get out of so be very careful here.

Credit Cards

Credit cards are another risky option but they can work sometimes. There are some great zero interest deals on credit cards but that introductory period usually lasts a year, after which you’ll be subject to some pretty hefty interest payments. That means you can save yourself a bit of money if you can do the work and then pay the money back before that introductory period is over. If you can’t pay it back in time, you’ll be paying a lot more money back.

Before you borrow any money to do home renovations, you need to think about whether the benefits outweigh the negatives and be sure that you’re prepared to deal with the debts without getting yourself into a bad financial situation.

*This is a collaborative post.

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