For many homeowners, their property is more than just a place to live—it’s a financial asset that can be utilised to improve their quality of life. Whether you’re planning a loft conversion, an extension, or simply updating your kitchen, home improvements can be a great way to increase the value and comfort of your property. Two popular methods of financing such projects are remortgaging and equity release. But which is the right option for you? In this blog, we’ll explore both options and how they can be used to fund your home improvements.
What is Equity Release?
Equity release allows homeowners, to unlock some of the value tied up in their home without having to move out. There are two main types of equity release: lifetime mortgages and home reversion plans. For the purpose of home improvements, most people opt for a lifetime mortgage, where you borrow money secured against your home but retain full ownership.
When Should You Consider Equity Release?
- You’re 55 or older: Equity release is generally only available to homeowners aged 55 or older, making it a good option for retirees or those approaching retirement.
- You don’t want to move: If you love your home but want to access some of the money tied up in it for improvements, equity release allows you to do this while continuing to live there.
- You want to supplement your income: Equity release can also provide a useful source of additional income during retirement, alongside financing home improvements.
Pros of Equity Release for Home Improvements
- No monthly repayments: Unlike remortgaging, most equity release plans do not require monthly repayments. Instead, the loan is repaid when you die or sell your home.
- Unlock the value of your home: If you’ve owned your home for many years, its value has likely increased. Equity release allows you to access that increase in value without having to sell up.
- Tax-free cash: The money you release from your home is tax-free, which can make it an attractive option for retirees looking to fund renovations or improvements.
Cons of Equity Release for Home Improvements
- Interest can roll up: With a lifetime mortgage, interest is added to the loan and compounded over time, which means the amount owed can grow quickly.
- Reduction in inheritance: Releasing equity from your home reduces the amount of inheritance you can pass on to your beneficiaries.
- Impact on means-tested benefits: Taking a lump sum through equity release could affect your eligibility for certain means-tested benefits.
Which Option is Best for You?
The decision between remortgaging and equity release depends on some factors, including your age, financial situation, and the size of your home improvement project.
- If you’re under 55, remortgaging is likely your best option as equity release isn’t available until later in life.
- If you’re over 55, equity release could be a more attractive option, especially if you’re looking for a way to fund home improvements without having to make monthly repayments.
- Consider the size of the project: For larger projects that require significant capital, remortgaging may provide the funds you need at a lower interest rate. On the other hand, equity release may be more suitable for smaller-scale improvements that don’t require large upfront sums.
Conclusion
Home improvements can greatly enhance both the value and comfort of your property, financing them doesn’t have to be a burden. Both remortgaging and equity release offer viable options, depending on your circumstances. As with any financial decision, it’s important to seek professional advice to ensure you’re choosing the best option for your needs.
If you’re considering remortgaging or equity release to fund home improvements, TMS Princes can help guide you through the process and find the best deal tailored to your circumstances. Contact us at princes@the-mortgagestore.co.uk or call 01844 391385 to discuss your options.
Disclaimer: Equity release will reduce the value of your estate and may affect your entitlement to means-tested benefits. Remortgaging may extend the term of your loan or increase the overall cost of borrowing. Always seek independent financial advice before proceeding.
