Home improvements can be a great way to enhance the functionality and value of your property.
However, they often require a significant financial investment. While there are various ways to finance home improvements, not all options may be suitable for your particular situation. In this article, we'll explore seven common ways to finance home improvements and provide advice on choosing the best option for your needs and budget.
By the end of this article, you'll be equipped with the knowledge to make an informed decision and turn your home improvement dreams into a reality.
7 common ways to finance home improvements
From using your savings to taking out a personal loan, here are seven of the most common ways to finance home improvements:
We’ll kick our list off with our favourite option of all: using existing savings or putting money aside for home improvements.
Why is it our favourite? Easy. Using your savings means you’ll avoid lumping yourself up with additional debt.
If you are lucky enough to be able to save up or have already done so, this is the clear winner, in our opinion.
Remortgaging your home
Remortgaging is a popular choice amongst homeowners, but it should not be done on a whim.
Going down this route will mean switching lenders and, naturally, increasing the amount you’ll be borrowing to cover the home improvement you wish to make. For many, timing will be key, as those on a fixed-rate mortgage will want to remortgage as close to the end of the deal as possible. Otherwise, the early repayment charges may prove to be prohibitive.
It’s also worth bearing in mind that additional interest will be due, and you’ll be paying that for the duration of the mortgage, which could increase at any time.
Increasing your existing mortgage
Another way to fund your home improvement would be to increase your existing mortgage with your current lender.
This could be a way of avoiding the aforementioned early repayment penalty charges if your mortgage still has a while to run. Increasing your existing mortgage may also be a good idea if your current deal comes with comparably low-interest rates, as you may not be able to beat it elsewhere. You will, however, still be increasing the amount you owe and that debt will be secured against your property.
Not only that, the interest rate on the amount you borrow could differ from the rate you’re paying currently.
Releasing equity from your property
Releasing equity is an option some older homeowners may find attractive, but it isn’t for everyone.
Equity release can sound great on paper, but it should be approached with caution. Yes, you’ll get a tax-free lump sum, which you can spend as you wish, but taking money out of your property in this way will affect any inheritance you’d like to leave. Additionally, you may forgo any entitlement to certain benefits that are currently means-tested too.
Many companies offering equity release deals often hard sell their products, so you need to be mindful of the consequences before you enter into any arrangement.
Taking out a loan secured against your property
Secured loans–AKA home equity loans or secured homeowner loans–are another method frequently used by homeowners looking to improve their properties.
Low rates and long terms make them attractive deals, but you are putting your home at risk if you choose this option. Failing to make repayments could result in repossession, which makes them a dicey way to fund home improvements.
Our advice would be to think long and hard before going down this road.
Taking out a personal loan
As an alternative, you could take out a personal loan.
This, though, has one obvious drawback: the amount you can borrow. Typically, personal loans are capped at £50,000 max, which will limit the kind of home improvements you’ll be able to undertake. As they are based on creditworthiness alone, though, personal loans will not put your home at risk.
Opting for a fixed-rate personal loan has the added benefit of letting you know exactly what you’ll be paying back in advance.
Using credit cards
If you’re looking to make small improvements to your home, our final option may be worth checking out.
Credit card debt can seem scary, but it doesn’t have to be…providing you’re sensible and disciplined. Many credit cards offer 0% introductory rates and some will allow you to transfer your balance from one card to another interest-free too. The downside is that these terms are usually short and the amounts you can borrow, low.
Always remember to pay off any outstanding debt before the interest-free period ends, otherwise you’ll be left with the lender’s standard rate, which can often be extortionate.
How to ensure your home improvement will be financially viable
Before embarking on any home improvement project, it's important to ensure it will be financially viable in the long run.
A cost-benefit analysis can help you evaluate whether the increase in property value will offset the price of the home improvements. Consulting with a local estate agent or a property valuation expert can provide credibility and insights into how much value the improvements will add to your property. Additionally, considering the current state of the housing market and local property prices can guide you toward making a financially sound decision.
You should also check out these posts as well:
By researching and evaluating the potential financial return, you can ensure your home improvement project will be a wise investment in the long term.
Grants and government schemes for home improvements
Grants and government schemes can provide financial support for home improvements, making them a more feasible option for those on a tight budget.
Some grants and schemes may be offered solely by local authorities, while others may be available nationally. For the latter, check out gov.uk for current guidance. Disabled facilities grants and home energy efficiency schemes are frequently tweaked, changed, and renamed, so it’s always best to check to see what’s currently available.
It's also important to note that many of these schemes often come with eligibility criteria and application deadlines, so it's essential to do your research and apply promptly to avoid missing out on any funding opportunities that may be available to you.
So, what's the best way to finance home improvements?
After reading the above, it’ll probably come as no surprise to hear that there isn’t a universal answer that will apply to everyone.
The best option for one person may well be the worst for someone else. It really is a matter of assessing one's personal circumstances and making an informed decision based on your criteria. You could, however, always enlist the services of a financial advisor to help you explore the various options available should you not feel confident in doing so yourself.
Whatever you decide, makes sure the home improvements you make do just that: improve your home and its value.
If you’re thinking of buying, selling, renting, or letting in London or West Essex, Petty Son and Prestwich should be at the top of your reputable estate agents list.
Give our friendly team a call today to find out why we’ve been Wanstead’s number one choice for over a hundred years.
Kinga has been in sales since she was 17 and she already has both Negotiator and Sales Progression qualifications under her belt. She is bilingual, has a weakness for chocolate, and cites Robins Pie & Mash and The Cuckfield as her favourite Wanstead haunts.020 8530 9920 / Email Directly