Home upgrades are exciting, but they also need careful planning and budgeting. If you need extra funds, a secured loan could help. These loans let you borrow against your home.
Whether it’s a kitchen revamp or loft conversion, you might be thinking about a home improvement loan, and how do they work? They’re often used for larger projects that are paid off over time.
Here’s a simple look at how they work and what to expect.
What is a secured home improvement loan?
When planning large home improvements, you need some good, clear financial planning in place to make these happen. A secured home improvement loan is a practical option, enabling you to borrow a large amount by using your home as security. This kind of loan typically comes with lower interest rates and higher borrowing limits than unsecured options because the value of your property backs it.
How do secured home improvement loans work?
Secured loans are based on the equity you hold in your home. This is the portion of your home’s value that you actually own, having paid off part of your mortgage. When you apply for a secured loan, lenders will assess your home’s value and your remaining mortgage to determine how much they can lend you. Because the loan is secured against your property, you may be able to borrow more at a lower interest rate than other available lending options. But be mindful that if repayments aren’t met, your home could be at risk.
Compare home renovation loan deals
Before you apply, take time to compare lenders. Rates, terms, and borrowing limits can vary. Review what each loan offers and its total cost.
If you’re wondering how to get a home improvement loan, start by looking at your credit score and home equity. You can also use this homeowner loan calculator to get a quick estimate.
Comparing loans side by side gives you a better idea of what suits your project. Some may have lower rates but longer terms.
Apply for your loan
Once you choose a deal, you’re ready to apply. Lenders will ask about your income, spending, and property.
If you’re serious about getting a home improvement loan, get your documents ready, proof of income, ID, and how you plan to use the money.
Not sure how to begin? A homeowner loan broker can explain the process and suggest loans that fit your needs.
Start your home improvement
After approval, you’ll receive the funds and can start your project. That might be a bathroom upgrade or a new roof. No need to delay and save.
Plan your budget and set some money aside for any surprises. The type of work you choose matters; some value-adding home improvement projects can raise your property’s value.
With the funds ready, you can hire help, buy materials, and complete the work on your terms.
Repay the loan
Repayments are monthly and fixed if you choose a fixed-rate loan. Make sure your budget can cover them.
Missed payments could put your home at risk, so only borrow what you can repay. With good planning, getting a home improvement loan can make your project smooth and stress-free.
What should I consider when choosing a home improvement loan?
You have to consider a lot of factors, like the full cost of borrowing, interest, fees, and how long the loan lasts. Let’s understand them in detail.
How much can I borrow?
The amount you can borrow with a secured home improvement loan depends on how much equity you have in your property and your credit history. These loans often allow homeowners to borrow anywhere from £10,000 to £1 million or more. If you’re unsure how to get a home improvement loan or how much you might qualify for, it’s a good idea to use a homeowner loan calculator to get an estimate based on your specific situation.
What are the pros and cons of secured home improvement loans?
Secured loans have distinct advantages that make them a preferred option for many homeowners. However, you should weigh these benefits against potential drawbacks before making any final decisions.
Pros:
- Lower interest rates: Secured loans usually come with lower interest rates than unsecured options
- Higher borrowing limits: You can potentially borrow significantly larger sums, which is ideal for extensive renovations or high-cost projects
- Flexible repayment terms: These loans often allow repayment over a longer period, reducing your monthly repayment amounts.
- Increase home value: By using a secured loan for home improvements, you may increase your property’s value over time, recouping the investment when it’s time to sell
Cons:
- Risk to your home: The main risk is that if you fail to make repayments, the lender could repossess your home to cover the debt.
- Fees: Some secured loans come with additional fees, such as arrangement, valuation, or early repayment charges.
- Longer terms could mean you repay more: By extending the term of the loan to reduce your monthly repayments, you could repay more interest over the full term compared to unsecured loans with shorter terms.
While the risk to your property is a significant consideration, these loans can only be arranged through an advised process, which should ensure that you’re able to afford the repayments.
Other things to consider for secured home improvement loans
Before committing to a secured home improvement loan, there are several factors to keep in mind. Each of these can affect the terms you’re offered and your ability to repay the loan:
Interest rate
Interest rates for secured loans can vary depending on your lender, credit score, and loan amount. Fixed-rate loans offer predictability with set monthly payments, while variable-rate loans can fluctuate with the Bank of England base rate, potentially lowering or increasing over time. Pepper Money offers both fixed-rate and variable-rate loans, and you’ll have the chance to discuss the best option for your circumstances.
Credit rating
Your credit rating is a critical factor in determining both your eligibility for a loan and the interest rate you’ll be offered. A good credit score can secure you a better deal, while a lower score may result in higher interest rates or limited borrowing options.
The amount you’re borrowing
It’s important to carefully consider the amount you want to borrow. Although secured loans allow for larger sums, only borrow what you need to avoid taking on unnecessary debt.
Loan duration
The term of the loan affects both the total interest you’ll pay and the size of your monthly payments. A longer term lowers monthly repayments but more interest overall, while a shorter term will increase your monthly payments but reduce the total cost of the loan.
What are the different types of home improvement loans?
When planning upgrades, many homeowners look for ways to spread the cost. Home improvement loans offer a way to fund your project without dipping into savings. There are two main types, secured and unsecured, and each works differently depending on your needs, budget, and plans
Secured loan
A secured loan uses your home as collateral. It’s usually suitable for larger projects and often comes with lower interest rates. If you’re exploring this option, it may help to understand the key secured loan benefits before making a decision.
Unsecured loan
An unsecured loan doesn’t use your home as security. It’s often quicker to arrange but may come with higher interest rates and lower borrowing limits.
How can I find a home improvement loan?
Start by comparing loan options, checking interest rates, and thinking about how much you need to borrow. People often look at different methods, including how others finance home improvement, to decide what works best for them.