How Just Mortgage Brokers Can Help You
If you are looking to carry out home improvements – whether that is a loft conversion, installing a new kitchen, renovating a bathroom or building a new conservatory – there are a number of ways to fund the project. You may be in a position to dip into savings, but if you do need to borrow for home improvements the principal options are either to remortgage or take out a further advance on an existing mortgage, or to get a secured or unsecured personal loan. Here we will look at some of the differences between the different types of loans.
Secured vs unsecured loans for home improvement loans
Unsecured loans are not secured against a tangible asset (such as a property). This represents a higher risk to lenders in the event that the borrower defaults on the loan repayments; interest rates for unsecured loans are therefore usually notably higher than for an equivalent secured loan. Unsecured loans are also typically taken out for a shorter repayment term – normally between one and five years.
Secured loans, on the other hand, are secured by a legal charge typically against a property. That means that if you default on the loan payments, the property, which is for many their home, can be repossessed to repay the defaulted debt. This makes secured loans a potentially riskier option for the borrower, but it reduces the risk to the lender. As a result, secured loan interest rates are generally lower than for unsecured lending. Secured loans are often repaid over a longer term – usually terms of between 5 and 25 years are available.
Do I qualify for secured loans for home improvements?
The first factor to take into account if you are looking at taking out secured loans for home improvements is the amount of equity you have available in your property. Equity is simply the difference between the amount of borrowing you still have outstanding against your property, and the current value of your home. If, for example, your property is valued at £200,000 and your current outstanding mortgage balance is £140,000, then you have £60,000 of available equity. Many lenders limit their lending to a maximum of 75% loan-to-value (LTV), so in this case the maximum you could borrow would be £10,000 (taking your total secured borrowing to 75% of the property value). There may, however, be some lenders who offer secured lending to levels over 75% of the value of your home.
As with any type of borrowing, your credit history will have a bearing when your loan application is assessed. However, because the loan is secured against your property, you may find it easier to get a secured loan for home improvements with a poor credit history, than you would an equivalent unsecured personal loan. There are also a number of lenders on the market who specialise in secured lending for those who have had debt problems such as defaults, IVAs and even bankruptcies.
Other points to consider
If you are trying to decide between secured vs unsecured loans for home improvement loans, it is important to weigh up the pros and cons of each. The amount you want to borrow will have a bearing: lenders vary, but typically unsecured loans are available from around £1,000 to £25,000, while secured loans usually start from about £10,000 to an upper limit of around £2,500,000.
Secured loans are almost always cheaper than unsecured loans in terms of interest rates; however, this has to be balanced against the potential risk of securing more debt against your home. Always ensure that secured loan payments fall well within what you can afford to pay each month, and if necessary ensure you have provisions in place in the event of accident, sickness or unemployment affecting your ability to repay the loan.
Secured loans can be taken out over a longer term than unsecured loans, usually up to 30 years. While this can make the monthly loan repayments more affordable than a shorter-term loan, it also increases the period over which you will be charged interest, and this could actually mean you end up increasing the total cost of the loan over the entire term, in comparison with a shorter-term unsecured loan.
Contact Just Mortgage Brokers today
At Just Mortgage Brokers we have years of experience in helping people find the right type of loan for their circumstances. Contact us today to learn more about secured loans for home improvements and how we can help you find the deal that is right for you.