Adding Home Improvement Loan to Mortgage – Problems and Pitfalls

Are you thinking of borrowing extra on your mortgage for renovations but don’t know where to start? Welcome, this guide is here to help you understand how to add a home improvement loan to your mortgage in 2023.

Each month, over 6,900 people visit our website seeking advice on secured loans. It’s clear that you are not alone in this journey.

In this guide, you’ll learn about:

•  What a home improvement loan is and how it works
•  The benefits of making home improvements
•  The process to add a home improvement loan to your mortgage
•  Why people choose to consolidate debts
•  Other ways to fund home improvements

We understand that loans can sometimes be confusing. That’s why this guide is made simple and clear. We are here to help you make the right choice for your home improvement needs.

Let’s get started.

What is a home improvement loan?

A home improvement loan is exactly what it sounds like. It’s a loan from a bank or online lender for the purpose of using the money to make home improvements, such as a new kitchen, loft conversion or house extension. 

These loans are typically secured with an asset, and that asset is usually home equity because to be making home improvements you’ll already be a homeowner. 

This means if you don’t pay the loan as agreed in the agreement, the lender can force the sale of your property to recover their money. If there is also an outstanding mortgage balance on the property, the mortgage lender will have first access to the sale proceeds to clear the mortgage debt. 

Can you add a home improvement loan to a mortgage?

If you have an existing mortgage and an existing home improvement loan, you might be able to add the home improvement loan debt to the mortgage debt. This is called debt consolidation.

How do you add a home improvement loan to a mortgage?

You can add your home improvement loan to your mortgage by extending your mortgage to borrow extra money. The additional money you borrow should be enough to clear the outstanding home improvement loan, keeping in mind any early repayment charges and other fees you may be subject to for paying the loan back early. 

This is known as remortgaging for debt consolidation. You can remortgage with your current lender or you can remortgage completely and switch to a different lender. 

Adding home improvement loan to a mortgage (Simple example!)

Tony and Julie own a £150,000 property with an existing mortgage of £40,000 and an outstanding home improvement loan of £15,000. They currently pay 4% fixed interest on their mortgage and 6% fixed interest on their home improvement loan. 

To consolidate debts and save some money, they ask their mortgage lender if they will allow them to remortgage and borrow an additional £15,000. The mortgage lender agrees and gives them a cash lump sum of £15,000, which is then used to clear the home improvement loan debt. 

Now, Tony and Julie have no outstanding home improvement loan because the debt has been added to their mortgage balance, which has now increased to £55,000. They’re paying 4% interest on this amount and are therefore saving some money on interest payments compared to the previous situation.

Can I add to my mortgage for home improvement?

It may be possible to extend your mortgage to pay for home improvements and renovations. This is an alternative funding method to taking out a separate lien of credit against the property or property equity.

Instead of getting a home improvement loan to fund improvements, you could ask your mortgage provider to remortgage and borrow more money to cover the expected costs of the project. 

The mortgage provider may be willing to lend you more and you’ll receive a cash lump sum. This will depend on your ability to repay and the lender is likely to consider what other debts you have against your income. 

Do I need to tell my mortgage lender about a renovation?

You don’t have to tell your mortgage provider about any upcoming or recent home renovations. The existing mortgage agreement will remain the same whether your property declines in value or whether home improvements make the property more valuable. 

The only time you may want to tell your mortgage lender about completed home improvements is when you want to extend your current mortgage. And that’s because those home renovations may have enhanced your borrowing power. 

As mentioned earlier, the average home renovation will increase a property’s market value by 10% on average. If your property value recently increased due to a new conservatory or extension, the amount of equity you have in the property will have also increased. 

With more equity, you may be able to borrow more against the property when you remortgage. So it may be worth telling your mortgage lender in this situation, and they may need to re-value your home first.