Building an extension to your home can be a great way to increase living space, improve the value of your property, and make your home more comfortable. But funding a house extension can be expensive. If you’re a homeowner looking for ways to finance your extension, you might be wondering if you can remortgage your house to help cover the cost. Don’t worry, in this guide, we’ll explore whether remortgaging is a good option for funding your home extension, what factors will affect the decision, and what to consider before you proceed.
How does remortgaging for home improvement work?
Remortgaging means switching your mortgage to a new deal, often with a different lender When remortgaging for a home extension, you would take out a larger loan against the value of your property. This means you can use the extra funds for the cost of the extension. It’s a way of borrowing against the equity in your home, which is the difference between your home’s value and the amount you owe on your mortgage.
The amount you can borrow when remortgaging depends on several factors, such as the value of your property, the equity you have in your home, and your ability to repay the loan. Remortgaging can offer you access to the funds you need, but it’s important to carefully consider your options and ensure you understand the terms of the new mortgage.
What factors will be taken into consideration when borrowing more?
When you apply to remortgage your house for an extension, lenders will consider several factors before approving your application. Here are the key points they’ll look at:
The amount of equity you own in your home
Equity is the difference between what your home is worth and what you owe on your mortgage. The more equity you have in your home, the more likely it is that you can borrow more money when remortgaging. If you’ve been in your home for a few years and paid down your mortgage, you may have a significant amount of equity built up.
How much your home has grown in value
Lenders will also look at how much your home has increased in value since you first bought it. If property prices in your area have gone up, your home may be worth more than when you first bought it, and this can give you more borrowing power. It’s important to get an up-to-date valuation of your property to know how much equity you have.
Cost of home improvements
The total cost of your home extension will play a big role in the remortgaging process. Lenders want to know how much you plan to borrow and whether you can afford to repay the additional loan. Be sure to get accurate cost estimates for the extension so you can borrow the right amount.
Affordability
Lenders will assess your ability to repay the remortgage by looking at your income, expenses, and current debt. They want to ensure that you can afford the new monthly payments without putting yourself under financial strain. Make sure your finances are in good shape before applying for a larger loan.
Current financial situation
Lenders will also consider your current financial situation. If you’ve had any recent changes to your income or financial status, such as a job change or missed payments, it might affect your ability to remortgage. It’s important to have a stable financial position to increase your chances of approval.
Should I remortgage after making the improvements?
Once your home extension is completed, it’s important to evaluate whether remortgaging was the best option. While it may have helped you finance the extension, you should review your mortgage terms to ensure they still meet your needs. If your home’s value has increased significantly, you may be able to remortgage again for a better deal or to pay off any outstanding debts.
It’s also important to consider if the monthly payments are manageable now that the extension is complete. If you find that the payments are too high, you may want to explore other ways to adjust your finances, such as refinancing your mortgage or speaking to a financial advisor.
Expert tips for remortgaging to extend your house
Here are a few expert tips to keep in mind when remortgaging for a home extension:
Early repayment charges
Some mortgages come with early repayment charges if you remortgage before the end of your fixed term. Be sure to check your current mortgage agreement to see if this will apply to you. It’s important to calculate whether the extra cost of these charges is worth it in the long run.
Check that your home has increased in value
Before remortgaging, get an up-to-date valuation of your home. If your property value has gone up, this could give you more equity and allow you to borrow more. If your property value hasn’t increased, you might find that remortgaging isn’t worth the cost.
Keep an eye on your loan-to-value (LTV)
Lenders use your loan-to-value ratio (LTV) to assess how much you can borrow and at what interest rate. The LTV ratio is calculated by dividing your loan amount by the value of your property. The higher the ratio, the more risky the loan is for the lender. If your LTV ratio is too high, it may affect your ability to get the best mortgage deal.
Go through a broker
A mortgage broker can help guide you through the remortgaging process, especially if you’re unfamiliar with the process of applying for a new loan. They can help you compare different mortgage deals, find the best rates, and ensure that your remortgage is structured in a way that works for you.
Are there other ways to fund a house extension?
If remortgaging isn’t the right option for you, there are other ways to fund your house extension. For example, you might consider a second-charge mortgage, which allows you to borrow money on top of your existing mortgage without remortgaging. This can give you access to the funds you need for your extension without changing your current mortgage terms.
You could also consider taking out a personal loan or using your savings to pay for the extension. Each of these options has its pros and cons, so it’s important to consider your financial situation and long-term goals before making a decision. Check this article which compares a remortgage vs second charge mortgage.
Final thoughts
Remortgaging can be a practical way to fund a home extension, but it’s important to carefully consider your options. Understanding how much equity you have, how much your home has increased in value, and whether you can afford the new loan payments will help ensure that remortgaging is the right choice for your project. Be sure to consult with a broker to guide you through the process and help you find the best deal.