How to fund home improvements

One way to cover part of home improvement costs is by using your savings. Using your savings to pay for something lasting and meaningful can give you a glow of achievement. Planning your outgoings in detail could help you only lay out what you can afford.

If you’re aged 55 or over, one way of funding home improvements is by using equity release - a way to unlock money tied up in the value of your home without having to move. The most common type of equity release is a lifetime mortgage, which is a long-term loan that allows you to borrow money secured against your home.

A lifetime mortgage does not usually require monthly repayments. Instead, the loan and any interest added to it are repaid, usually from the sale of your home, when you (and your partner for a joint lifetime mortgage) die or move into long‑term care, subject to terms and conditions.

Taking out a lifetime mortgage will reduce the amount of equity available in your home. This means it will reduce the amount of inheritance you can leave. It may also affect your tax position and your eligibility for some welfare benefits.

Interest is added to the loan and to the interest that has already been added meaning the amount you owe can grow quickly. 

There is an option with some lifetime mortgages to make voluntary partial repayments—up to a set limit each year—without an early repayment charge. Making repayments can reduce the total amount owed, but whether this is suitable will depend on your financial situation.

A lifetime mortgage is a long-term financial commitment and alternative ways of funding home improvements may be more suitable. A financial adviser will help you decide what is right for you.

With seemingly countless providers available, some credit cards offer thrifty options to handle big-ticket purchases, including interest-free periods, 0% balance transfers and spending rewards. These could offer a cost-effective way of temporarily zapping interest or fees that you might otherwise have had to pay. 

While these perks can seem appealing, making fewer repayments on a short-term loan can make it harder to balance your regular outgoings. For example, borrowing £6,000 within a credit card's 12-month interest-free period would mean you'd have to pay back £500 a month. 

And once your credit card balance is no longer in its 0%-interest period, costs will stack up based on your issuer's interest rates.

A secured loan can run for up to 40 years and usually uses your home as security— that’s why it's also known as a second mortgage.

Unsecured loans usually run for up to seven years and charge more interest, since lenders tend to view them as higher risk than secured loans. If your credit score's up to scratch, you might still snap up a more reasonable loan than if you have a poor credit rating.

You can generally borrow a lot more with a secured loan ^{Footnote [1]}, but if you don't keep up with your repayments on secured loans, your home may be repossessed.

A remortgage might be a practical way to get your hands on the cash you need for home improvements. You'll borrow on top of your existing mortgage, whether from your current lender or an alternative one. It’s important to remember that you'll have to pay back more than you borrow, and interest builds up on the balance until it's completely repaid.

Remortgaging later in life can be tricky, as lenders' affordability checks consider age and income. For an accurate estimate of your payments, you need to work out how interest stacks up. Your home may be repossessed if you do not keep up repayments on your mortgage.

It's also worth remembering that while a home improvement could increase your home's eventual sale price, that uplift may not exceed the cost of the upgrade. This is especially true if interest rates rise, or house prices fall. Either of these could leave you with negative equity (where your debt exceeds the property's value).