Home Improvement on a Budget: Can Your Mortgage Help?

Home improvement brings additional expenses, especially when you already have a mortgage. For things like energy-efficient windows, kitchen or lot conversion, you need a sufficient amount.

This additional amount may not be in your bank account. In that case, managing within budget limits is a big challenge.

Your current mortgage can help you manage your home improvement expenses. However, it also depends on what type of deal you have. Example – if it is a bad credit with no deposit mortgage, you must have reached the highest limit of the loan-to-value ratio. But still, some options are there.

Read the guide below to find out whether your existing mortgage or a new mortgage can make your home renovation pocket-friendly. 

Home improvement tips to save money and plan on a budget

Here are some suggestions to decide the budget for the improvement without disturbing your finances much.

Plan a realistic budget

You need to know about budget home improvement tips. This will help you to estimate your expenses easily. Also, you can know that if you need help in managing expenses through your mortgage, then what will be your exact amount requirement for that?

You should understand that for a proper home improvement requirement, it will help you in making a realistic budget. Approximate ideas and confusion at the moment can increase your expenses. It is important to keep 10% to 15% margin for unforeseen costs. Therefore, the more you plan, the easier it is to plan for fund arrangements for the purpose.

DIY possibility

Small tiling jobs, painting, garden conversion, etc., are some such tasks for which you can reduce your labour cost. These are such works that you can also do yourself.

By watching videos on YouTube, read the detailed guide on DIY blogs.  Using that, you can do many small and big works in the name of home improvement. 

Recycle and repurpose

It is not necessary that you completely replace the things present in the house in the name of home renovation. The wise solution would be to use existing furniture and household things through recycling or restoring.

Similarly, old wood or tiles can be used. You can also consider reducing your cost by reusing mirrors and cupboards. Nowadays, recycling and repurposing ideas are encouraged in interior design and home decoration.

Get multiple quotes

For home improvement, you need to hire contractors. But never finalize the first contract you get. Take quotes from at least four to five contractors and compare their pricing, and then make a final decision. Only after taking a quote from all the contractors will you know which option will have what effect on your budget.

How can your mortgage support your home improvement expenses?

In several ways, your mortgage can help manage home improvement expenses effortlessly.

Consider remortgaging to release equity

What is equity?

It is the difference between a property’s current market value and the due mortgage amount on it.

If your property value has increased, you may have a good amount of equity. Otherwise, if you have paid a part of your mortgage, that too can be considered as equity. Consider remortgaging, as that can allow you to borrow an extra amount. This borrowed money can be used for renovation.

Here is an example –

•  Assume that your current mortgage is £1,50,000
• Your home or property value is £2,00,000
• In that case, equity will be £50,000
• Get a remortgage of £1,70,000

It means £20,000 can be borrowed for home renovation.  However, you can also borrow a complete £50,000, which is the equity as the difference between the mortgage and the property value.

Remortgage means extending your current debt on the property. Hence, this extends your mortgage tenure and the total interest rate. This considerably increases the monthly and annual cost.

Take further advances from your lender

Taking further advances is about borrowing additional funds on your current mortgage. It is usually considered a simpler option than a remortgage. However, to qualify for this advance, you need to have a spotless repayment history with your mortgage company.

Only with a history of timely paid mortgage instalments can a lender think to offer you this additional amount. The best part about this option is that you do not need to choose a new lender and follow a complete procedure. Also, it may be more affordable than the other options.

However, you should know that this advance may come with a different interest rate policy than your mortgage. Also, this may cause a considerable increase in your current mortgage cost.

Home improvement loans

You can also think of taking loans for home improvement. Some home loan lenders offer such loan solutions that will be different from your current mortgage.

These loans are specifically useful for smaller home improvement needs. Example – if you think your expenses for renovation can be paid under £25000, consider this loan option.

The loans have fixed monthly payments and a quick application procedure, which are two significant features. When you plan for an improvement, getting speedy funds becomes important. Hence, for renovation plans, think about this option as well.

However, as a drawback, you may find that these loans have a higher rate of interest than the mortgage deals. Also, due to a smaller amount, the repayment period is short, hence the instalments may not be very pocket-friendly.

Suggestions before borrowing against the mortgage

Before you take the next big step, consider the points below for a wise and rational decision.

• Think about your affordability

Can you afford to pay bigger instalments? Extra borrowing directly affects your income stability. Hence, it is better to use loan calculators to know how much you can afford to pay back.

• Credit score

Your credit score is one of the decisive factors. A good credit score means you can get better deals. Whereas, a lower credit rating means you have fewer reasons to expect an affordable deal.

• Loan-to-value ratio

Lenders allow you to borrow up to 85% to 90% of your property value. Therefore, if you have already reached that limit, remortgaging may not be practically possible.

• Length of stay in the property

If you plan to stay for a long time, consider home improvement. Otherwise, if you want to sell it soon, calculate the approximate return on investment.

Conclusion

The above points and facts demonstrate that obtaining funds through a mortgage for home improvement is always possible. However, every option comes with its pros and cons. You just need to understand which alternative will work best in your financial circumstances. Hence, plan well and spend smartly for home renovation.

It is an indication of smart financial planning if you can use a currently running mortgage for another purpose as well. You can also consider hiring the best mortgage broker online, especially for remortgaging. However, that will incur an additional broker fee. Make sure you are financially and mentally prepared to bear the extra debt.