In this guide we cover why you might consider remortgaging for home improvements, together with important factors to consider before you go ahead with putting your personal stamp on your own home.
Why you’d consider remortgaging for home improvements
Experts have said that investing in your existing home is more cost-effective than relocating to a new property in order to fulfil your home requirements.
Remortgaging your home for home improvements, and using the equity towards home improvements, is one of the main options available for securing funds to help complete the intended work on your home. Whilst completing work on your home can help fulfil your goals of your dream property, it could also assist in making you more profit on your home if you are looking to renovate to re-sell.
Even though you will be taking out a loan against your mortgage, by remortgaging you could potentially look at going onto a lower fixed rate mortgage. This could help reduce your monthly payments if your current equity outweighs your existing mortgage balance.
Important factors to consider when remortgaging:
Equity:
One of the first and most important things to think about when considering remortgaging your home for home improvements is the current level of equity you have in your home. This is easily calculated by subtracting the value of your outstanding mortgage from the value of your property.
For example:
If your property is currently worth £350,000 and your current mortgage balance is £250,000, then you currently have £100,000 of equity in your home. The term LTV – Loan to Value – is often used when remortgaging and is the ratio of loan compared to the existing value of the property. In this current example your LTV would be 71.4%.
Lenders consider LTV to determine the risk when lending you additional funds. A high LTV would result in less equity and security, and could result in higher rates and a harsher lending criteria in comparison to a lower LTV.
Your existing mortgage:
Before considering applying for a higher loan amount, ensure all your monthly mortgage payments are up-to-date and that by borrowing more you are not over-exceeding your maximum affordability. In most circumstances this should be okay - but it’s important to consider any changes you’ve had in your personal circumstances, such as change of income or an increase in financial dependants.
By remortgaging, you may increase your existing mortgage term depending on the option you select when applying. Although predicting your situation over the next few years can be difficult, your mortgage is most likely your biggest financial commitment and by increasing your mortgage term you are making a further commitment. Once you have applied for the funds and have had them approved, you are responsible for paying them back. So, if your circumstances do adjust in the future, it is important to consider this factor.
Your current financial circumstances:
When you apply for a remortgage on your property, it’s important to remember you are essentially re-applying for a mortgage. Therefore, you are subject to the same criteria as before. This will include your debt-to-income, your disposable income, your credit score and existing loans you may have.
And when you remortgage for home improvements with the intention of making money in the long run, it’s also important to remember that initially you are increasing your loan amount. Therefore, it’s important both yourself and your mortgage provider feel comfortable when it comes to increasing your existing amount.
An idea of your overall cost:
If you are intending to complete multiple improvements in your home, having an idea of the overall cost will make your application process easier. It will also help to ensure you are only borrowing what you require and that you are applying for enough funds to complete the intended work. It is a good idea to get quotes in advance to help you decide how much you need to borrow.
Should I remortgage before or after making improvements to my home?
Depending on the level of work being carried out, and your current financial situation regarding the funds you have available, you may consider remortgaging after you have completed the improvements to your home - especially if they will add a substantial value to your property. You may be eligible for lower rates of interest if your LTV is a lesser amount.
However, in most circumstances the funds are not always available beforehand. Remortgaging first, and then using the funds towards completing the improvements may be your best option.
How Choice Mortgages can help
Whatever your requirements may be, we can help with your remortgage. We have helped thousands of clients all over the UK, so whether you are local or live further afield – we can assist you and lead you through the process of remortgaging.
We are specialists in what we do. We understand the lending criteria and also have access to the whole mortgage market. After an initial free consultation, we will have an understanding of your circumstances and will be able to ensure that your existing lender options have been considered. Let us take the hassle away and provide you with a tailor-made solution. Don’t let busy lives get in the way of you finding a remortgage that is right for you.
