How to finance your home renovation

It’s never too late to upgrade your home. With interest rates still low and many environmental incentives from the government to get properties more eco-friendly, the climate’s strong for those looking to renovate. However, despite these benefits, you’ll still have to come up with the funds yourself to pay for the work. Here’s a look at the financial options available to you, depending on your personal situation:

Home renovation Finance

It’s never too late to upgrade your home. With interest rates still low and many environmental incentives from the government to get properties more eco-friendly, the climate’s strong for those looking to renovate. However, despite these benefits, you’ll still have to come up with the funds yourself to pay for the work. Here’s a look at the financial options available to you, depending on your personal situation:

Paying Cash

If you’ve got it, cash is always good for small projects. However, it’s important to calculate how much you’ll potentially miss out on if you have the money in another high interest investment account. You need to measure the losses in compound interest, as well as any penalties for early withdrawal, with that of an equivalent loan. Perhaps a loan could even be cheaper! Also you have to look at the potential profit you’ll make on the project. If it’s a pretty sure bet, it’s always easier to take the risk.

Credit card

Uh oh.  Did we hear someone say credit card? Well, at least this is for a hopefully profitable project – you’re not simply buying shoes or other fripperies that many people use plastic for! On the plus side you can pay off just a small amount each month and you can avoid the hassle of waiting for a loan approval. As well as this, you can easily keep track of your spending. On the other side, there’s always the problem of higher interest rates, which are generally steeper than other types of loans. You need to shop around for the best credit card interest rates, but overall for larger amounts, conventional loans are better.

Bank loan

Home renovation Finance 1

Hooray, the banks! We just love them (well, when they’re giving us money for useful projects). Overall, a bank loan is the pretty standard way to finance a renovation, or any other item that has initially got a high outlay.  Fixed repayments are taken from your account at regular periods, as with any other loan. What’s best is to try to arrange weekly payments to keep interest rates lower, as the repayment overall equals the sum of the original loan plus accrued interest, so weekly instalments can reduce this amount more quickly than a single monthly payment.

Remortgaging

Refinancing your existing mortgage can allow you to spread payments over a longer period of time and gives you access to a large percentage of your home’s value. Usually you’ll be allowed a maximum of 85 percent Loan To Value. The extra money you’ll borrow will be paid on top of your existing mortgage each month.  The interest rate varies according to the lender and there are exclusions to consider, as most lenders will usually not offer an additional loan within the first six months of taking out a mortgage. And if your personal circumstances change, you may not meet your lender’s affordability criteria. When it comes to your provider, you could remortgage with your existing one, or switch to another altogether. Changing providers in this low interest rate environment could be advantageous if you took out your mortgage before 2008, as interest rates were higher.

Thanks to LDG, an estate agents in Central London, with properties for sale in Covent Garden for this guest blog.

Erin Emanuel