23 December 2015

Looking to borrow more to make home improvements?

If you’re looking to borrow money, perhaps for an extension, a new kitchen or other home improvements, you could take out a personal loan from your bank or building society, and pay it back with interest over an agreed period of time.

Or if you’re a home-owner with a mortgage, you might be able to top-up your mortgage. Additional borrowing against the value of your property, sometimes referred to as a further advance, is possible if you have a certain amount of equity in the property. The additional amount you’re borrowing is a separate secured loan that’s linked to your mortgage.

We help weigh up the considerations as you decide what’s best for you.

How much do you need to borrow?

The amount you would like to borrow may be a deciding factor in which route you choose to take. You may find that you can borrow more if you take the additional borrowing route because you’re using your home as security. According to Moneysupermarket.com a further advance may be up to £100,000 depending on the lender, whereas a personal loan can be up to £25,000.

Are you comfortable using your home as security?

A mortgage is secured against your home, which means that if you can’t afford your repayments, you could lose your property. Although an unsecure loan doesn’t carry this risk the consequences for not paying it back can also be serious, so it’s important to do the research upfront and have a repayment plan in place.

How much interest will you pay?

A mortgage advance won’t necessarily be at the same rate as your existing mortgage, so you’ll need to check with your lender what the options are. A personal loan rate usually depends on how much you want to borrow and your individual circumstances.

But it’s not just about the interest rate, you should also take a look at the length of the term. A shorter term may mean higher monthly payments but you pay it back over the shorter period of time. It is also worth considering whether the interest rate is fixed or variable. If the interest rate is variable your interest rate may change in the future. A fixed rate allows you to budget so you know how much you need to pay back every month.

As with any form of borrowing, you need to make sure you will be able to pay it back. Sit down and look at your budget, then plan how you will meet the further advance or loan repayments each month. Use our budget calculator to help work out your monthly budget.

What fees will you pay?

It’s worth finding out if there’s a fee from your lender or broker to set up the further advance or loan. If flexibility is important, you can also find out whether there would be a charge to make overpayments or pay back the money early.

Could it impact your credit score?

Applications for borrowing will be recorded on your credit file. Some lenders can perform a no obligation quote for a personal loan first, that won’t be visible to other lenders unless you accept the quote.

We can’t offer a mortgage quote in this way. However, to get an idea of how much you could borrow against your home, you could use our Mortgage Affordability Calculator or speak to a mortgage advisor, which won’t affect your credit score.

Can you get a good deal from your existing provider?

It always makes sense to research the market and look for the best possible deals before applying for a loan. You should also check with your existing bank or mortgage provider to see if there are deals for existing customers. Many lenders offer preferential rates for existing customers.

Whereas if you wanted to borrow more against the value of your property, you would be restricted to the offers available from your existing mortgage provider.

THINK CAREFULLY BEFORE SECURING OTHER DEBT AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

Find out more before you decide

It’s a good idea to research your options further before deciding between secured and unsecured borrowing. Get as much information as you can to help you make the choice that’s right for you.

Read our guide to understanding loans and credit.
Read our guide to secured borrowing.

Interested in a personal loan?
Get a no obligation quote without affecting your credit record

Already have a Nationwide mortgage?
Find out about borrowing more

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