EXTENSION ESSENTIALS
Thinking of extending? Then find out what your finance options are with advice from financial experts in the know
Homeowners have a raft of options to finance an extension project. Adding the borrowing to existing mortgage debt or taking out a loan are obvious choices, but there are plenty of alternatives, too.
Sarah Coles, personal finance expert at Hargreaves Lansdown, says: “There’s no single approach that’s right for everyone, so it’s worth understanding the benefits and drawbacks of each approach, so you can find your right one.”
If you’re looking to add space to your home, here’s how you could finance an extension this year…
USE SAVINGS
Using savings to pay for your house extension can make sense. It’s straightforward with no third-party involvement or interest to pay.
Kevin Mountford, savings expert at Raisin UK, says: “One of the many benefits of using cash savings is that it can speed up the process from getting contractors to completing the project, without having to wait for bank approval and loans to enter your account. Similarly, it will lower your costs overall for the extension as, unlike a loan, you won’t have to pay back any interest.”
But using your savings is a big decision and it’s generally unwise to run your reserves down to zero.
TRY REMORTGAGING
By switching mortgage deals and borrowing more money to cover the cost of the extension, remortgaging enables you to shop around for the best mortgage product on the market.
“If interest rates are low, and your existing mortgage rate is relatively high, it can also be a cost-effective way of organising funding,” says Mark Harris, chief executive of mortgage broker SPF Private Clients. “However, the opposite is true if rates are rising — if your existing mortgage is on a low rate, you may wish to hold onto it, rather than remortgaging the whole amount to a new, higher product.”
You’ll need sufficient equity in your home to remortgage for a higher amount. For example, if your home is worth £300,000, and your current mortgage is for £150,000, you could remortgage for £200,000 and use the £50,000 on home improvements.
If early repayment charges on your current mortgage would make a remortgage too expensive, you could borrow more money from your current lender in the form of a ‘further advance’. T
