Home improvements are generally performed to increase the value of a property or to increase the comfort of its occupiers. Often, home improvements such as an extension will allow the homeowners to reside in the property for a longer period than would otherwise be practical. In these instances, borrowing money to improve their home is often more cost-effective than moving house to one which already has all of the features that they are planning to add to their own property.
The most cost-effective way of borrowing a large sum of money when you already have an attractive mortgage product is to ask your existing lender to increase the value of the loan and withdraw the excess as cash. This allows you to keep the existing terms and conditions, interest rate and repayment schedule whilst also accessing the cash that you need to improve your home.
Provided that the work is complete before the end of the mortgage deal, it is likely that you will save money on your next remortgage rates. This is due to the property having increased in value, having achieved an improved loan-to-value ratio [4]. You should always compare the available options to ensure that you access the best remortgage deals. This might make better financial sense than remaining loyal to your existing lender.
If you are unable to borrow extra money against your existing mortgage product and are at a point in your mortgage where you will not attract significant fees for remortgaging, this is usually a more attractive option than taking out a separate secured loan. You can perform a secured loan versus remortgage comparison to ensure that you select the best value option for your particular circumstances.
If you are unable to remortgage, then taking out a secured loan will be considered a second charge mortgage [5] against the property. The interest rate will likely not be as favourable as that associated with a mortgage as the outstanding mortgage balance is considered the priority debt and therefore the lender is taking a larger risk in lending to you.