Whether it be some new bathroom tiles, the addition of a conservatory, or a total renovation of your home, you’ll need some serious cash behind you to get the job done. Thankfully, there are plenty of ways to do this, beyond saving up to pay for a project in cash. One such method of funding a home renovation project is a renovation mortgage.

Renovation mortgages are one of several loans that can be used to fund the renovation of your home. They can help you get your hands on the cash you need quicker than you might expect, and offer you a few unique advantages to boot. But how exactly do they work, and what sets renovation mortgages apart from other loan types?

In this article, we will answer these questions, break down renovation mortgages, and ensure you can make the best decision for your situation. Let’s get started.

What is a renovation mortgage?

A home renovation mortgage, or home renovation loan, is exactly that – a loan used to fund the renovation of a home. This is fairly open-ended; home renovation loans can be used for a wide range of purposes, whether it be to remodel a room, add a new room to an existing building, or give the entire home a fresh look. Provided you have a project in mind that adds value to your home, a renovation loan is likely to be an option.

There are many different ways to renovate a house, each with its own needs and unique aspects. Accordingly, there are quite a few renovation loans to choose from. While many home renovation loans take the form of a mortgage, there are several that work a bit differently. Some make use of the equity in your home to raise a lump sum, while others function the same as an unsecured personal loan. Regardless of their differences, each type of renovation loan aims to get you the cash you need to fund your project.

When to use a renovation mortgage?

Generally, renovation mortgages are a good idea for when you have a plan to add value to your home, but don’t have the money to enact it. This could be anything from repairing a hole in your roof, to adding a fully furnished home office. Renovation mortgages can also be an option to develop a run-down property bought at a low price. That said, dedicated property development loans could be a better option if you have such a project in mind.

Your intended renovation project will determine which type of renovation loan is most suitable for you. Some renovation loans will simply be off the table, such as mortgages for minor repair work. Similarly, large-scale renovations will require an equally large renovation loan in order to be completed. You will need to carefully consider your options against the needs of your situation in order to make the right decision.

Also Read: Bridging Loan or Mortgage – How To Finance Your New Home

Types of renovation mortgages

There are quite a few different types of renovation loans of varying sizes available. Some can be used for minor projects, such as small repairs or the refurbishment of a single room. Others can be used to fund larger projects, such as the addition of a garage or conservatory, or even the general remodelling of your home. Here are some of the most commonly used types of renovation loans:

Personal loans

Personal loans are one of the best methods of financing small renovation projects. Unlike many of their counterparts, personal loans are unsecured loans. This means that they do not require any collateral assets, nor do they require you to have equity in your property. While this certainly can be advantageous, it does have two main downsides.

As they are unsecured, personal loan lenders prefer borrowers with a strong credit history and income, with the best products typically being locked to borrowers with high credit scores. However, some lenders will offer certain products to borrowers with poor credit scores, though they will come at higher interest rates. Additionally, personal loans tend to be on the small side, with an upper limit of around £25,000, or sometimes £50,000 for established bank customers, though this does depend on your lender. While this could be an issue for more ambitious projects, it is perfect for small-scale renovations.

Cash-out refinance

Cash-out refinance is another commonly used renovation loan, one that can often be used to raise much more than a personal loan. A cash-out refinance makes use of your equity in a property, with the amount you can borrow being directly tied to your equity share. This can be perfect if you own a large amount of equity and have an expensive project in mind, but it may not be as useful in other circumstances. That said, cash-out refinances have a second benefit that can keep this option in the running.

If you have a mortgage with a high interest rate, a cash-out refinance can help you refinance that mortgage for one with a lower interest rate. In doing so, you’ll reduce your monthly mortgage payments and get yourself a lump sum to add extra value to your home.

Home equity loans (HELOC)

A Home Equity Line of Credit, or HELOC, is often used to fund home renovation projects. Flexibility is one of this loan’s main draws, as unlike other loans, a HELOC is a revolving line of credit. In practice, this functions similarly to a credit card; you have a maximum credit limit, but can borrow as frequently or infrequently as necessary, provided you don’t exceed this limit. This makes HELOCs incredibly useful for lengthy renovation projects, as unexpected costs or adjustments in the project aren’t as much of a spanner in the works.

Wrapping up

All in all, renovation mortgages can be an excellent tool for raising the funds needed to spruce up your home. Whether you need a large lump sum for a new kitchen suite, or you just need a little financial help to repair some wear and tear, there’s a renovation loan for you. However, the variety of loans can pose its own challenge, as each renovation loan has its strengths and weaknesses. As such, you should carefully consider your situation’s needs before taking action.