What are home improvement loans?

Should you wish to make major improvements to your home, how would you fund it? If you have savings, that's all well and good, but if you don't have the money put away you may want to borrow it. Should you wish to borrow money specifically to improve your home though, there is an option that it's worth learning about. This is the home improvement loan.

In some ways, this is a mortgage extension. Your mortgage lender will like to lend you money for this, as you are increasing the value of property that they own until you have paid back your mortgage. They also like the fact that you will have to pay interest on your home improvement loan as well, so they can make more money out of it.

You can actually buy your property and organise a home improvement loan at the same time. The way to do this is to add up the home improvement loan and the mortgage amount and check that it doesn't add up to more that the property's value. After you buy your home, you can normally arrange a further loan up to around £25,000.

So why should your mortgage lender be your first port of call? Simple really, this is a secured loan, so you can get a lower interest rate anyway, but also you have the advantage of being able to borrow the money at your mortgage lender's standard variable rate, which should be lower than any personal loan rates. Even if you won't receive the mortgage rate, you should at least find yourself able to obtain a favourable loan rate.

If you can't get more money from your mortgage lender, then some other loan providers will offer special home improvement deals. These deals may feature money advanced to you in tranches, which take account of home improvement work costs being difficult to predict. The final cost could well be more or even less than you originally budgeted for, so being able to borrow only the money you actually need is important.

Bear in mind, though, that you need to fund essential improvements with a home improvement loan. It will not help you out for most extension work, unless you can show that it is essential. Rather, you want to use the loan to fund a new bathroom or kitchen, or a safety improvement. Should your work not be essential, then you may have to ask instead for an extension on your mortgage. The difference between this and your home improvement loan, is that an advance has to be repaid over 25 years, which means more interest is paid. A home improvement loan is the same interest rate but a shorter repayment period.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

© AskFinancially.com 2008

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