Adding Home Improvement Loan to Mortgage – Problems and Pitfalls

This guide explains borrowing more on a mortgage for improvements and refinancing an existing home-improvement loan. Compare the full costs and home-security risks.

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. 

A home-improvement loan can be an unsecured personal loan or secured borrowing. Check the agreement; the purpose alone does not determine the security.

The loan is secured on the property. Missed payments can lead to repossession through the applicable legal process; security does not remove affordability checks or give the lender an automatic right to take the home without that process.

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?

One possibility is a further advance or remortgage with additional borrowing, if approved. Obtain a settlement figure for the existing loan, including any early-repayment charge, before calculating the amount needed.

A remortgage replaces an existing mortgage. A further advance is additional borrowing from the current lender and normally leaves the existing part in place; both require appropriate eligibility and affordability checks.

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. 

In this illustration, they ask to replace the £40,000 mortgage and £15,000 loan with £55,000 of mortgage borrowing, before fees. Approval and the assumed rate are not guaranteed.

If the new rate were 4%, the rate on the refinanced £15,000 would be lower than 6%. That does not establish total savings: a longer repayment term, fees or early-repayment charges can make the new arrangement more expensive.

Can I add to my mortgage for home improvement?

A further advance or remortgage with additional borrowing may fund improvements if the lender permits the purpose and the borrowing is affordable.

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?

Check the mortgage conditions before starting work. Structural alterations may need written lender consent; planning, building-control, leasehold and insurance requirements are separate checks.

Tell the lender and insurer about work when required by their terms, rather than waiting until you want to borrow more.

Renovations do not produce a universal 10% value increase. The result depends on the work and local market and may be less than its cost.

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.