There is little doubt that a new house extension can be of great long-term benefit, both practically and financially. Having an extra space added to your home might mean that you don’t need to go through a costly move, and it is very likely to add value to your property and make it more attractive to prospective buyers in the future.
However, in the short-term any kind of large-scale home improvement project is going to cost a significant amount of money, and finding the best way to raise that cash is one of the first things you should decide on if you are thinking about getting a house extension. Here are a few of the most popular options available for funding an extension.
Remortgage your home
Homeowners wishing to fund a major home improvement project may have the option of remortgaging their home. You can do this by either getting a large advance on your current mortgage arrangement or by getting a completely new mortgage. On the plus side, mortgages tend to have lower annual percentage rates (APRs) than loans, but there will be some fees to pay. It should be noted however that taking out a second mortgage represents a long-term commitment. Expect to owe money for another 20 years at least.
Get a home improvement loan
As its name suggests, this is a loan that is specifically designed to help you cover the costs of a home improvement project like a house extension. There are two types of home improvement loans: secured and unsecured.
A secured loan is one that uses your home as collateral, and it allows you to borrow a large amount (often over £20,000) for a long period of time (over ten years) with a comparatively low APR. Unsecured personal loans are usually for smaller amounts (£10,000 or less), that you are expected to pay back within ten years or so, often with a higher APR than a secured loan. The downside to a secured loan is that you will be putting your home at risk if you fail to make repayments.
Another option is to take out a home equity loan. This is a type of secured loan that lets you borrow against the equity you have in your home, i.e. the amount of your mortgage that you have already paid off.
Other options for funding an extension
If you have savings, then you might consider a house extension a worthwhile investment, particularly if you are confident that it will add to your property’s value. Perhaps the best reason for using your savings is that it means you will not be entering into any kind of debt. The downside of doing this, of course, is that once your savings are gone, it takes a long time to get them back. Are you really sure you want to spend all of the money you have saved up in one go?
Other options include credit cards and overdrafts, which are a good way of accessing a comparatively small amount quickly, but can be expensive to pay back. Finally, of course, you could resort to the Bank of Mum and Dad, although there’s always a risk that this particular lender could be the most demanding of them all.