Looking to make home improvements? A great way to add value to your home is to renovate it, but it can be pricey. There are many ways to fund renovations or extensions but if you don’t have the time to save up and don’t have the funds readily available, a secured loan for home improvements could be the solution.
What is a secured loan for home improvements?
Also called a homeowner loan, a secured loan lets you borrow money whilst using the equity you have built up in your home as security. As the collateral put up is your property, loan providers often lend larger sums of money than they would with other loans.
A secured loan can range from anywhere between £10,000 to £1,000,000 and can be paid over 3 to 30 years. If you take the loan out over a longer term, it would mean that your monthly repayments are lower but it could cost you more overall.
What is a secured loan good for?
A secured loan or a homeowner loan is a great choice for home improvements or renovations because they can be rather expensive. Not everyone has that lump sum readily available and may need to borrow some money. A secured loan is faster than remortgaging, too. If you’re considering any of the following projects, a secured loan might be for you.
For a shiny new kitchen
A good way to add value to your home is to upgrade the kitchen. Outdated looking cupboards and appliances that are on their last legs don’t do your home any favours. But between the worktops, furniture and white goods, there can be a lot to replace in a kitchen and you’ll need the cash to do it.
For a handy conversion
You can essentially add another room to your property by converting a garage, annexe, loft or attic into whatever you fancy. Whether it’s a gym, a recording studio, or a spare room, it’s certainly cheaper than moving to a bigger house!
To upgrade your old bathroom
Want a shower instead of a bath? Or need to make your bathroom more accessible? Transforming your bathroom could add value to your home, but also make it more liveable for those who need a little more room to get around.
To build an extension
Adding an extension to your property not only gives you and your family more space, it adds value to your home. The same applies for adding a conservatory.
Am I eligible for a secured loan for home improvements?
To be eligible for a secured loan you must own your own property. Fortunately, there aren’t too many other criteria to get a secured loan. Your income and credit score aren’t looked at so closely, so if your income has been reduced for whatever reason, like retirement or a reduction in hours, this shouldn’t disadvantage you.
Can I get a secured loan with bad credit?
Having poor credit doesn’t mean you cannot get a secured loan, but it might make it a bit harder and you may have to pay more. The good thing is that because the loan is taken out against your property, loan providers aren’t necessarily worried about losing their money.
Taking out a homeowner loan and meeting all your repayments on time could even be beneficial and improve your credit score. But don’t forget that if you suddenly hit difficulty and cannot pay it off, you risk losing your home.
Pros and cons of secured loans for home improvements
As with all loans, there are both pros and cons of taking out a secured loan for home improvements.
Pros
- You can raise funds quickly
- Interest payments of a secured loan are often cheaper than an unsecured loan
- The amount you can borrow is often larger than with an unsecured loan
Cons
- You can risk losing your home if you don’t keep up with the repayments
- You could have higher interest rates to pay if you have a bad credit score
- You may have to pay early repayment charges if you want to pay the loan off early
Assess the repayments
Really consider the repayments. Do they seem realistic to you? If you aren’t confident you will be able to afford the repayments on a secured loan, it’s not for you. Only go ahead with it if you know you’re paying off an amount you can afford.
Be aware of the interest rates
Secured loans often have variable interest rates. Think about whether you would still be able to afford the repayments if the rates were to go up.
Consider the length
Shorter loan terms might have lower interest costs, but the monthly repayments are higher. And longer terms have lower monthly costs but higher overall costs. Think about what your priorities are and how much you can afford to pay on a regular basis.
If you’re looking to make your home more accessible or impress your next dinner party guests with a brand-new kitchen, a secured loan could help you do it. Just make sure you can afford the repayments, know how long you are willing to pay them off for, and are prepared for any surprises with the variable interest rate. There are many deals out there, so make sure you’re looking at one that’s right for you.
Expert analysis from Chris Kyriacou
Case Study
Scenario: Home Improvements
MR and MRS T wanted to put an extension on there property as their family were outgrowing the family home. They did not want to move as the house was in the right location for the children’s schools and close to Mrs T elderly parents.
After receiving a quote from their chosen builder Mr and Mrs T approached their mortgage broker about a remortgage with additional borrowing. They wanted to raise an additional £110000 to complete the works. They had the equity in the property but were unable to raise enough on the first charge mortgage market they were limited to borrowing £70000.
Solution: A second charge mortgage, they were able to borrow more on a second charge mortgage than on a first charge mortgage as the second charge lenders uses a higher income ratio calculation. Mr and Mrs T were able to borrow the £110000 to complete the works and stay in their family home. The kind of secured loan you get will depend on your financial situation and individual circumstances, but here are our tips for getting yourself a good deal.
FAQs
What’s the difference between a secured loan and a personal loan?
Personal loans are often smaller amounts (£1000 to £15,000) and are repaid over shorter periods of time (12 to 60 months). You also don’t need to be a homeowner to get one.
For a homeowner loan, you need to be a homeowner and you still have a good chance of being accepted if you don’t have a good credit score because the loan is secured against your home.
Can I pay off a secured loan early?
It is sometimes possible to pay off a secured loan early, but this will depend on your loan provider and may incur early repayment charges. It’s important to consider this when looking at secured loan deals if you think you might end up wanting to pay it off early.
How much does a secured loan cost?
There are fees to consider when taking out a secured loan alongside the interest rate such as appraisal fees, legal fees and admin fees. The total cost of your secured loan will depend on the deal you select, and the fees involved.
