If you’ve got a big home improvement project in mind, setting a budget and deciding how much you have to spend is the first step. Ordinarily, most people look to release some equity in their house by remortgaging. But with sky high mortgage rates at the moment, many homeowners are looking at other options. Our partners at HomeOwners Alliance explain the other financing options available.

Whether you’re doing essential repairs, putting in a new bathroom or completely gutting and renovating your property, one of the biggest challenges is working out how to pay for it. With mortgage rates at a fifteen year high, it’s no surprise that homeowners are reluctant to risk their current mortgage rate by remortgaging.

There are other options

First of all there is the option of a “further advance” which involves borrowing more money from your current mortgage lender. If you choose this route to improve your home without remortgaging, you don’t need to worry about early repayment charges or risk your entire mortgage amount being moved onto a higher rate. 

It’s worth noting that the interest rate you’re charged on the additional borrowing could be different from your current mortgage rate - so remember to work out the total cost to you.

Secondly, homeowner loans - also known as home improvement loans or second charge mortgages - are another option that allows you to borrow money against the equity in your home, without touching your current mortgage deal.

With a homeowner loan you are loaned money secured against the equity in your home but it sits behind your original mortgage. So your current mortgage deal remains in tact. 

More often than not, home improvements are the main reason for getting a second charge mortgage, but they can also help if you want to consolidate your debts or if you want to raise a deposit for a second property. 

However, secured homeowner loans don’t come without risks so it’s important to do your research first. The most obvious benefit of getting a secured homeowner loan is that you can carry on paying on your main mortgage deal, no need to alter the rate or the term as this is added on as a secondary charge. 

But as this is a secondary loan, many lenders deem this a higher risk as this portion gets paid off after the main mortgage, so the interest rate is much higher. Plus there is also the risk of repossession if you cannot meet the additional payments. See our guide about homeowner loan pros and cons to get the full picture.

Before taking the plunge with either funding option, it’s a good idea to speak to our partners at Chartwell Funding, they’ll look at all your options, including a further advance with your current lender, remortgaging or a second charge mortgage to help you decide the best option for you. Speak to them on 01454 809 300 for no-obligation discussion of the possibilities. Or visit our site for more information - our guide 6 ways to improve your home without remortgaging lists all the funding options available.

Written by the consumer property website HomeOwners Alliance 

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