Are You Getting the Most from Your Home Renovation Loan?

Melinda (Milli) Haine Melinda (Milli) Haine | Loan Underwriter

A home renovation loan makes it possible for you to borrow significant sums of money for the purposes of improving your property. Moreover, in doing so, you increase the value of your property should you decide to sell it in the future. That is why Secured Loan Expert is so fond of this sort of financing. In light of that, we want to help you get the most from any secured loan you obtain.

The first thing you need to understand is that secured home loans are offered based on a combination of your credit rating and the equity in your property. What is equity? It is the difference between the outstanding balance on your mortgage and what your property is worth on the current retail market. As an example, consider a home that would sell for £200,000. You would have equity of £75,000 if the outstanding balance on your mortgage were £125,000.

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If you need cash to help with home improvements, you can borrow against that £75,000 in equity. The exact amount you could get would depend on the lender's loan-to-value (LTV) ratio.

LTV Ratio

Understanding LTV ratio will help you get the most from your home loan. LTV is a ratio that compares how much the bank will loan against the value of collateral. In the case of a home loan, current equity acts as collateral. Therefore, the LTV ratio tells you how much you can borrow against your equity.

Using our previous example of equity at £75,000, let us also assume you are considering a bank with an LTV ratio of 75%. That means you could borrow up to 75% of your £75,000 in equity, or £56,250. This example should illustrate why LTV ratio is so important when comparing secured loans.

Spending Your Cash

The next thing to note is that a secured home loan is incredibly flexible in terms of how you spend the money. You may take out a loan with every intention of spending all the money on home renovations. But then you might find some incredibly good deals that allow you to complete your projects under budget. What do you do with the rest of the cash? You can apply it toward paying off the balance of your loan or spend it on other things. It is entirely up to you.

Some people purposely take out loans greater than what they need for home improvement projects. They do so to fund other things that can include everything from a dream holiday to paying for a child's wedding. There are not many other consumer loan products that offer you the power and flexibility of a secured home loan.

Renovations as an Investment

There are consumers who would question taking on a home renovation loan in order to fund their renovation projects. They do not see the point of getting into debt unless the renovations in question involve structural or mechanical issues. However, we would like to point out a very good reason for taking out a secured loan for home renovations. The reason can be summed up in one word: investment.

Renovating your property is a lot like the routine adjustments made to an investment portfolio. By making certain improvements here and there, you are increasing the value of your property on the retail market. This increases the value of your investment while, at the same time, increasing your equity. In essence, you are using the power of your current equity to generate more equity and a higher resale value.

A home renovation loan is not right for every homeowner. Nevertheless, for those who can benefit from its power and flexibility, a secured loan can provide the cash for much-needed repairs and renovations. A secured home renovation loan allows the consumer to borrow the large amounts of money required for substantial home improvements.

If you want to ensure you get the best deal on a secured loan why not give our friendly team of experts a call our advice is completely free. Our experts will scour our whole of market panel of high street and specialist lenders for the lowest cost loans to suit your individual circumstances. In just a few minutes you will have a list of the best offers and a side by side comparison of the features, negatives and full costs of each loan. When you have chosen the best offer our experts will construct and submit a fully optimised application on your behalf ensuring that the lender reviews your case in the best possible light.

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