Home improvements, like adding an extension, can boost your property's value and enhance your living space. However, if you don’t have the funds needed to do this, getting a loan can help you.
In this blog, we will delve into the many financing options available for house extensions. We'll break down the pros and cons, making it easier for you to choose the option that fits your needs.
What is an extension?
An 'extension' is where you expand an already existing property. Usually, it is undertaken to give you more space in your house.
It may involve the addition of another room or it may be looking at making an existing room larger. If you’re carrying out an extension you may be looking at building over your garden or another part of your property. So, it may reduce the space you have elsewhere.
However, if you choose to build upwards, it may not affect the ground-level space you have available.
How much will an extension cost?
The size of your extension is one of the most important factors that affects the overall cost. Larger extensions tend to require more materials, labour, and time. When planning your extension, carefully consider your needs and budget, as well as local regulations that may have restrictions on the size of extensions.
Also, your choice of materials affects the cost of your extension. Using high-end finishes will cause expenses to rise, so find a balance between aesthetics and budget. You could work with a contractor to find cost-effective and durable materials that match your vision for the extension.
Some people choose a conservatory instead of a full extension to add space without spending as much. It's worth considering, as it takes advantage of natural light and can help bring your house and garden together. But, conservatories may not boost your home’s value as much as a full extension.
How to fund a house extension
When considering a home extension loan or home improvement loan, a few options exist. Each type has its own set of pros and cons. Understanding these differences can help you find the best kind of funding for your plans.
Remortgage
Remortgaging your home is where you move to a different mortgage product. This could be either with a new lender or through a different deal offered by your current provider.
When you remortgage, you may consider getting a larger loan than required to give you extra funding for plans such as home improvements.
Pros
- If you secure a new mortgage deal with lower interest rates, your overall borrowing costs may decrease. This could save you money in the end.
- You can access a source of funds without requiring a separate loan.
- If you have other debts, remortgaging can provide an opportunity to consolidate them into a single loan, potentially simplifying your finances.
Cons
- By borrowing more against your home, there's a significant risk. If you fail to meet the repayments, you could potentially lose your property.
- If you decide to remortgage before the end of your agreed term, your current lender may impose early repayment charges. These can often be expensive.
- Remortgaging means forfeiting your current deal. If your term is concluding, this is generally acceptable, as the deal would end anyway. However, ending it earlier than agreed may result in the loss of favourable terms without a guarantee of finding a better deal.
Secured loans
Secured loans are a type of funding option that uses a property you own as security. This security reassures the lender that you will pay the money back, because if you don’t they can seize the property.
Pros:
- As you have used a property as security, you may be able to unlock larger loan sizes. Therefore, they could be more suitable for major renovations.
- Lenders are usually more lenient on those with lower credit scores, as you have collateral in case things go wrong.
- In some cases, better interest rates and extended repayment terms may be available compared to alternative funding options.
Cons:
- The borrowing limit is linked to the value of your property.
- You could risk losing your home if you fail to keep up with the repayments.
- Borrowing over a longer term may mean you repay more in interest overall.
Unsecured loans
Unsecured loans don’t need a property to be used as security and are usually agreed upon based on your credit history and income. This means some lenders may give you stricter terms for your loan, as there may be a higher risk of lending to you without security.
Pros:
- You have flexibility in using the funds for various purposes, including debt consolidation, home improvements, or unexpected expenses.
- Since there is no collateral involved, your assets are not at risk in the event of default on the loan.
- The application process can sometimes be faster, and approval can be obtained more quickly than other funding options.
Cons:
- You might find the interest rates are higher than secured loans. Lenders charge more because they bear a higher risk without collateral.
- Approval is more reliant on your credit score, so if you’ve had trouble with this in the past, you may be declined.
- Usually, they have lower borrowing limits. If you need a substantial amount of money, this might not be the most suitable option.
Summary
When funding a house extension, explore different choices to find the right solution for you. Each has advantages, but be cautious about risks, especially when using your property as security. Pick an option that fits your project and finances. Remember to make smart choices for a successful and financially savvy house extension.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.
