Unless you are very lucky, the chances are you’ll have to borrow money one way or another to fund your extension. The good news is there are a number of ways you can do it.
It is possible to get an additional mortgage that allows you to borrow money for your extension. You could increase your current mortgage or borrow against the equity in your home (if you have any).
This gives you some flexibility in the payments. For example you can borrow a larger amount over a longer period of time, making it more affordable to pay back. One example would be to borrow £40,000 over 32 years. This would result in an additional monthly payment of about £150 on your mortgage.
The downside is that it can take a long time to secure the necessary funds. Furthermore, if you don’t have equity in your home, are in arrears or have bad credit, you may not be accepted for another mortgage.
However on the good side you can shop around for a good deal on mortgage payments. Rates at present are very low but they are not likely to stay that way forever. However even if they do rise you are likely to get a lower rate than you could on the next option.
Bank or building society loan
You could also consider getting a loan from a bank or building society. This doesn’t have to be the one you already have an account with, although it may be easier to get a loan if you are already a customer. Indeed, you may even find you can be ‘pre-approved’ for a certain amount of money.
You can get a secured loan, which is secured on your property, or an unsecured one that has no collateral to back it up. Unsecured loans are not as easy to get, and they are not usually available for larger sums of money. The biggest sum you could borrow is usually about £25,000. Thus it won’t be any good unless your extension is going to be on the small side, or you have some funds available from another source to add to it.
Secured loans can be easier to qualify for if you can put your property up as collateral against the loan. You might also have longer to pay back the money. This means you can budget for your extension more easily than you may think.
You may not have thought about borrowing money using a credit card. However, it is worth considering. There are pros and cons to this route, so evaluate it carefully before choosing this option.
Usually you get up to two months’ free interest when you make a purchase on a credit card. However there are deals on new credit cards that offer a longer 0% interest purchase period. At the time of writing the top cards were offering 0% interest on purchases for up to 25 months. However once this period ends you could find yourself paying around 18% to 19% in interest charges – and sometimes more.
If you can afford to pay the money back in the short term, this type of borrowing may work out cheaper than borrowing over a longer period of time. Borrowing via a mortgage or other loan over 30 years will most likely cost more overall. However as with an unsecured loan, you may not be able to borrow the full cost of your extension in this manner. The available balance you will be granted on a credit card will depend on your credit history and the provider you apply to. It may only be a fraction of the amount you need.
Which method (or methods) will work for you?
As you can see it is a good idea to consider every option available to you when it comes to borrowing money to build an extension. Adding an extension may add value to your property, but you still have to find the cash to pay for it to begin with.
Remember also that you can use more than one source of money if you wish. For example, let’s say your extension is going to cost £40,000. You could get a second mortgage for the whole amount, or you could use £10,000 in savings and reduce your mortgage to £30,000. On the other hand a smaller extension might cost £25,000. You could opt for £8,000 to be paid using a 0% interest credit card (paying off the balance within the terms stated) and get a £17,000 personal loan to cover the rest.
What will work best for you – and prove to be the most affordable option too?