Borrowing for Home Improvements

By: Peter Spyr

When it comes to DIY Home improvements in the UK, I study by the Halifax has discovered that 18-34 year olds are the most active with 68% working in home improvements on their homes over the last 12 months. However they were not alone as a huge 58% of British home owners across all age groups have been rolling up their sleeves and getting into their home improvements

Naturally aesthetics are not the only thing on these DIY enthusiasts minds. These people hope that their home improvements will make their homes more easily sellable and sellable for a greater profit. The bottom line is that the works are generally anticipated to net an additional £5000 on the resale value of the owners' homes. According to Halifax's annual Home Improvement Survey, the five most popular home improvements are:

* Re-decorating - 66% * Garden improvements - 41% * New furnishings - 30% * Laminate or wood flooring - 25% * New bathroom - 24%

So, how would you go about paying for these home improvements? Here are three options for you to consider:

1) Use cash or savings

As a reformed debt addict, this would certainly be my first choice. What's more, it's likely to be the cheapest option, since all you stand to lose is the interest on the money you put to one side or withdraw from your savings account. However, if you can't afford to fund your home improvements from your regular income, and you don't have an emergency fund or nest egg to fall back on, then your next option might be to...

2) Get an unsecured personal loan

These are known as 'unsecured' personal loans because they are not secured on your property. In other words, if you don't keep up the monthly repayments, you aren't likely to lose your home (although it is possible). Alas, choosing a personal loan is far from simple, as there are hundreds of different loans from which to choose. If you want to borrow from £1,000 to £25,000 without putting your home on the line, then don't move a muscle until you've read my twelve tips in The Loan Arranger Rides Again.

3) Borrow against your home

If you're planning some major work on your home, such as an extension, loft conversion, new kitchen or bathroom, then you'll probably need to borrow more and over a longer period. In this situation, you may decide that a secured loan is your best option. Although secured loans have their critics (and I'm one of the most vocal!), they do enable sensible homeowners to borrow cheaply against their properties.

If you do go down this route, then the first step is to ask your mortgage lender how much extra it will cost to extend your existing home loan, as this is often the cheapest option. If you don't wish to approach your existing lender for whatever reason, then next look into remortgaging with another lender.

You then need to shop around for the best possible deal in a choice rich secured loans market. However, this market can be dangerous, so watch out for bandits -- especially those which advertise in the back of newspapers or on daytime television!As with all borrowing, your goal should be to minimise the amount that you repay, so pay close attention to the interest rate (which may be variable) and fees being charged. It's also highly advise that you have details of all charges for credit in writing as well as a bottom line figure including loan interest and loan charges for the amount that you will be repaying over the life of the loan. Get it right and the TAR for a £25,000 loan over five years could be as low as £29,775 (7.34% APR). Get it wrong and the total could be as high as £38,884 (21.27% APR). Ouch!

Finally, don't be tempted to borrow more than you need and, while taking affordability into account, aim to arrange your loan over the shortest period possible, as this will minimise your final interest bill. In addition, don't become too eager on keep on borrowing against your home, because it's your dwelling, not a cash machine!

Interest rates for the vast majority of the unsecured loans are fixed and therefore don't move up or down over the course of your loan. Visit http://www.fool.co.uk/loans/compare-unsecured-loans.aspx for your home improvement loans

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