How to Remortgage for Home Improvements

Are you a homeowner and considering a remortgage for home improvements to enhance your living space? You’re not alone; many homeowners look to make their homes more comfortable and valuable for their family. One way to fund these home upgrades is by remortgaging.  We’ll discuss the basics or remortgaging along with the benefits, considerations and how it’s done.  

The Basics of Remortgaging 

Firstly, when you remortgage, you’re essentially taking out a new mortgage on your property while replacing or paying off your existing one.  This financial transaction can free up the equity you’ve accumulated in your home, making it an excellent source of funds for those required home improvements.

If you’re over the age of 50, there will be various other mortgage options for you to consider also, you can read more here – mortgages for the over 50’s. 

Here’s a quick rundown of the 4 key factors in remortgaging: 

1. Equity – This is the difference between your home’s current market value and your outstanding mortgage balance. The more equity you’ve built, the more you can access for improvements.  Once your home improvements are complete, your home may go up in value also.  

2. Loan Amount – Mortgage lenders typically allow you to borrow up to a certain percentage of your home’s value. The exact amount varies depending on your mortgage lender and personal financial situation.  As a rule, the higher the percentage of your homes value you borrow, the higher the interest rate you’ll be paying on your new mortgage.  This is due to the higher risk the mortgage lender is taking with the lending.  

3. Interest Rate – It’s highly likely that your new mortgage will come with a different interest rate. We’ll recommend the best option for you based on your personal financial situation. Your interest rate can be fixed or variable, influenced by market conditions and your creditworthiness.  Many of our clients go for a fixed interest rate, this is usually over 2, 3 or 5 years depending on their individual situation.  Your mortgage broker will recommend the best way forward for you here.  

4. Term – When remortgaging, you can change your mortgage term, which can be shorter or longer than your current one, depending on your financial objectives.  If you select a shorter term, providing that you can meet the higher mortgage payments, you’ll be mortgage free sooner than a customer that chose to keep their payments lower and go for a longer term.  You’ll pay less interest overall with a shorter-term mortgage if you can afford it.  

The 10 Advantages of Remortgaging for Home Improvements 

A remortgage to fund home improvements is the most popular way to fund your project, here we’ll explain the advantages.   

1. Releasing your Build Up Equity 

As your property value increases and you chip away at your mortgage, you accumulate equity. Remortgaging allows you to tap into this equity, giving you access to funds without selling your home. It’s a valuable resource for financing those desired improvements. 

2. Potential for Lower Interest Rates 

If you secured your current mortgage during a period of high-interest rates, remortgaging could help you lock in a lower rate. This can translate to significant long-term savings as you’ll pay less in interest over the life of the loan.  Also, traditionally mortgage interest rates are much lower than those of a personal loan or credit card for funding your home improvements.  

3. Debt Consolidation 

You can use the funds obtained through remortgaging to consolidate higher-interest debts, such as credit cards, store cards or personal loans. This can provide you with a lower interest rate and simplify your financial situation.  Please note that this is high risk lending, and your mortgage broker will need to run through all the associated risks.  

4. Increased Property Value 

Once your renovations are complete, your property valuation is likely to go up again, especially if you’ve added a new bedroom or an extension.  This is a wise financial move that can pay off in the long run.  

5. Cheaper than Moving Home 

Improve or move is a popular saying in the mortgage world when clients are both considering investing in their homes and at the same time exploring their moving options.

If you are happy with the area and your neighbours etc then choosing to stay and improve could be the sensible option.  You’ll avoid the fees associated with moving such as estate agency fees, legal fees, removals, and stamp duty.  

How to Remortgage for Home Improvements: A 10 Step Guide 

Now, let’s break down the process of remortgaging for home improvements into actionable steps. 

1. Get Mortgage Ready! 

Before diving into a remortgage, take a good look at your financial health. Consider your credit score, income, plans, and any outstanding debts. Your new mortgage lender will take all of these into consideration during the application process.  Our mortgage broker team will help you present yourself in the best light for an application.  

2. Identify Your Home Improvement Needs 

Remember, a mortgage is a long-term loan and unlike a personal loan it’s more difficult to borrow more in quick succession.  You’ll need to have quotes for the work including the labour and materials.  Sometimes, it’s easier to do other DIY projects in one go so please bear this in mind.

One of the common errors with a remortgage for home improvements is running out of money.  We always recommend factoring in a 5 to 10% buffer into your project costs to ensure that you have enough to meet any unforeseen costs.  

3. Calculate Your Equity 

You’ll need to know what your current mortgage balance is to calculate how much equity you own in your property.  To calculate your equity, you can subtract your current mortgage balance from your property’s current market value.  Your new mortgage lender will typically allow you to borrow a percentage of this equity.  The more equity that you have in your home, the more you will be able to release.  

4. Shop Around for Mortgages 

Our mortgage brokers will search the market to find you the best mortgage deal for your personal situation.  Saving you both time and money.  There are lots of options to consider with your mortgage broker such as if you are looking for peace of mind with a fixed rate, how long to fix for and if you would like to make any overpayments. 

5. Gather Required Documentation 

Lenders will require documents to process your remortgage application. These typically include proof of income such as ID, payslips and a p60, 3 months bank statements, credit file, and information about your current mortgage.  Being prepared with these documents will expedite the process.  We always suggest for clients to start a folder on their laptops and start to put a pack together.  

6. Submit Your Application 

Once your mortgage broker has recommended a lender and you’re happy to proceed, we’ll submit your remortgage application.  Your new mortgage lender will review your financial information and assess your eligibility.  You’ll be allocated a dedicated case manager by us to help you overcome any hurdles along the way.  

7. Valuation and Survey 

Your mortgage lender will request an up-to-date valuation of your property to determine its current market value and to check it’s worth what you say.  They may also request a survey to evaluate the property’s condition.  If you are looking to borrow a high percentage of the property’s value, the valuation might be a home visit.  

8. Mortgage Acceptance 

If your remortgage for home improvements application is approved, you’ll receive a formal offer from the lender.  We’ll ensure that you understand all the terms and conditions carefully before accepting. Once accepted, the lender will handle paying off your existing mortgage and providing funds for your home improvements.  This whole process will take 3 months on average.  

9. Home Improvement Projects 

With the funds from the remortgage in hand, you can start your home improvement projects. It’s important to stick to your budget and timeline to ensure a smooth and cost-effective process, please don’t run out of money!  

10. Repayment 

After completing your home improvements, you’ll have a new mortgage with adjusted terms. Make regular, timely payments to meet your financial obligations and secure your home.  Often, mortgage lenders will allow you to make overpayments on your mortgage to reduce the amount of interest you pay overall.  If possible, overpayments can bring your mortgage term down making you ‘mortgage free’ much faster.  

Important Considerations on a Remortgage for Home Improvements 

Before embarking on a remortgage for home improvements, keep these essential tips and considerations in mind: 

• Paying More Interest – As you are spreading your home improvement project cost out over the term of your mortgage of 25/30 years for example, it could work out that you’d be paying more interest than if you had taken a personal loan over 5 years.   Our mortgage advice team will help you consider this and calculate your affordability based on how much extra you are looking to borrow.  
• Affordability – Ensure you can comfortably manage the new increased mortgage payment, considering your financial situation and potential interest rate increases.  
• Seek Advice from a Mortgage Broker – Consulting a mortgage broker will prove invaluable in securing the best deal for your personal situation and your home improvement plans.  Your mortgage broker will ensure you can afford your mortgage and that it has the flexibility that you require. 
• Alternative Products – Your mortgage broker will consider is a remortgage is the best product for your needs, other types of lending such as a further advance mortgage, a secured loan or equity release mortgage plan may be more suitable based on your personal situation and age.   
• Use Retptable Firms – Use recommendations from friends, family members and social media groups in your area to find trustworthy trades people.  It’s wise to get multiple quotes that are all inclusive and to check references and reviews. 
• Future Plans – Consider your long-term plans for your property. Will you stay for many years, or is it a short-term investment? This can impact your remortgage decisions.  As part of your fact-finding journey, our mortgage broker team will help you with this and ensure you are doing the right thing for your individual situation.  
• Fees – There will be fees associated with remortgaging for home improvements, such as arrangement fees, valuation fees, and early repayment charges.  Again, your mortgage advisor will ensure that you fully understand how much these are and when they are payable.  
• Maintain a Good Credit Score – A strong credit score can help you secure an attractive remortgage deal for your home improvements.  Avoid credit searches and avoid taking out any new hire purchase agreement such as car loans and furniture on a buy now pay over so many years basis.   

A Conclusion of How to Remortgage for Home Improvements: 

Remortgaging for home improvements is a popular way to fund major home improvements and will allow clients to stay in their homes longer and be more comfortable.

At the remortgage time, options such as debt consolidation can be considered also helping to keep your monthly payments affordable for you.

Having a great mortgage broker team by your side will be beneficial as it’s not always easy and there will be hurdles to overcome along the way. Also, mistakes can be very costly.

Please book your free, no-obligation remortgage for home improvements consultation today.