Improving your home can increase its value, according to desktop valuations and make it more enjoyable to live in. But how do you pay for upgrades and renovations? With the cost of materials and labour on the rise, funding home improvements requires careful planning and budgeting.
Whether your goal is to add more living space, update worn surfaces or systems, or give your property kerb appeal, you’ll need access to capital beyond what’s in your bank account. There are several smart options for funding home improvement projects, from loans to government programmes, enabling you to approach home improvements with a realistic plan and focus on changes that will meet your needs while potentially boosting your home’s value.
The easiest solution, and the one with the most advantages financially, is using money you’ve set aside in savings. This is ideal since you avoid interest and fees. Even small projects can add up over time, so it’s wise to consistently save money in accounts earmarked for home upgrades and maintenance. Building your savings takes discipline, but is rewarding when you have funds ready to deploy for renovations. Having cash savings on hand gives you maximum flexibility to take on home improvements when it suits your schedule. While it requires patience and dedication, funding projects from savings is the most cost-effective approach.
Use home equity
Borrowing against the equity in your home through a home equity loan or line of credit allows you to access capital at relatively favourable interest rates. Home equity loans provide a lump sum and require fixed monthly repayments, while a line of credit operates more like a credit card with flexible drawdown up to a set limit.
It’s important not to borrow more than your available equity, which you can estimate using desktop valuations. While interest rates are lower than other financing options, home equity borrowing still adds debt you’ll need to repay, so consider costs like appraisal and legal fees as part of the overall expense. Used strategically, home equity financing can be an affordable way to fund projects that increase your home’s value.
Refinancing your mortgage for more than you currently owe and using the extra cash to fund renovations can free up capital, but also comes with costs. This cash-out method means you take on a new, larger mortgage to access funds needed for home improvements. Closing costs including valuation and legal fees can be high with this route, so be sure to factor these into your total project budget.
When running the numbers, pay close attention to the new interest rate as well to ensure the refinancing truly saves you money. Using a cash-out refinance to fund home upgrades can make sense, but requires weighing many financial factors to determine if it’s the most strategic financing decision. It can be beneficial to speak with a mortgage advisor before refinancing to ensure it makes sense for your circumstances.
Home improvement loan
Taking out an unsecured home improvement loan from your bank is another way to access funds for renovations and upgrades. These loans don’t require collateral like your home, so you avoid fees for valuations and legal work associated with secured borrowing. Just be sure to compare interest rates across lenders and choose the most competitive option for your needs and budget. You also need to make sure the loan term aligns with how long it will reasonably take to repay the borrowed amount.
While qualification may be easier without collateral, an unsecured loan likely comes with a higher interest rate than home equity financing, so create a budget to ensure you can manage the fixed monthly loan repayments on top of your other expenses. Home improvement loans place all repayment responsibility on you, regardless of the project outcomes. Weigh up the pros and cons to decide if this unsecured route fits your needs and budget best.
Exploring local and national government programmes can uncover grants, tax credits and low-interest financing options for certain home upgrades, such as renewable energy systems or heating appliances. For example, many councils and energy providers offer incentives for adding insulation, installing solar panels, adding EV chargers to the home and other green home improvements.
There are also schemes to help fund accessibility renovations, reinforce older properties against natural disasters, and revitalise historical sites. Eligibility conditions, application processes and financing terms vary widely depending on your location and the specific programme. Doing your research takes time, but the potential for subsidised or very affordable financing makes it worth the effort. Consult with your local council to ask about current incentives and initiatives available in your area first, before looking at national incentives.
Similarly, EPC loans are a type of loan that can be used to make energy efficiency improvements to a property. This can include things like installing insulation, new windows and doors, or a more efficient boiler. EPC loans are typically available to homeowners and landlords, and can be secured against the value of the property.
Bridging finance can be a handy option for securing short-term financing to purchase a property needing renovations or refurbish an existing buy-to-let. The flexible nature of these loans allows you to access funds quickly while waiting on the sale of another home, inheritance payouts or other expected transactions to finalise.
Bridging loans provide the capital needed to act fast when you find a “doer-upper” investment property or want to update your current rental to attract tenants and maximise rental income. The funds can cover the purchase price, renovations, or both. Just be aware the speed and flexibility of bridging finance comes with higher interest rates compared to other financing methods.
When it comes to funding home improvements, carefully weigh all your options to find the best fit based on your individual financial situation and the projects you have in mind. No matter which route you take, always make realistic budgets and choose upgrades that will meet your needs while strategically boosting your property’s appeal and value. Planning ahead and exploring all funding resources will lead to smart financing decisions.0