Homeowners have different reasons for extending the house. One is because your lifestyle and household needs are changing. Do you need an additional room? A bigger living area? Or perhaps, a more spacious kitchen and dining area? You may also consider a house extension due to your growing family. Kids will eventually need their own rooms and just a bigger space for everyone to move around.
No matter what your reason is, a good house extension is a worthwhile investment. The project can increase your home’s real estate values, functionality, and aesthetics. However, extending a house isn’t cheap at all. Depending on your location and project, the building materials and the contractors’ rates can be expensive.
To help you find the ideal funding for your house extension project, here’s a list of the best options:
- Mortgage refinance
Refinancing a home loan is perfect for homeowners looking to get lower monthly payments and interest rates. Others opt for it because they want to reduce their loan term and pay it off earlier than expected. But did you know that mortgage refinancing is also a good way to obtain funds for house improvements? This will fall under a cash-out refinance, which you can also use for other expenses such as college tuition or medical bills.
However, this will require you to have significant equity, which is built through your monthly payments. If you have built great home equity, you can use the money to fund your entire home extension project.
- Personal savings
Savings are kind of a given when it comes to finding funds. You’d want to lessen the amount of money you borrow as much as you can. But there are several things to consider before deciding to use your own cash in one go. For one, this is a foolish move if you don’t have a specific sinking fund for home improvements. The last thing you want to do is spend your emergency savings on a house extension.
On top of that, you’d want to consider how long it will take you to save up again. If you have a designated sinking fund for the house improvements and repairs, then use it so you won’t have to borrow extra money. Nonetheless, using your savings for such projects is more of a personal choice.
- Unsecured loan
An unsecured personal loan is an ideal option for bigger house extension projects. Generally, this comes with fixed loan repayments and up to a five-year repayment term, making it more manageable for you. But since the amount you can borrow is typically limited, you might need an extra financial source in case the personal loan doesn’t cover the total project cost.
Another crucial thing to check is the APR. While it is usually lower than credit cards, do not skip on checking for a competitive interest rate. The interest rate of an unsecured loan depends on the amount you borrowed, the chosen term, and your credit score.
- Credit card
Credit cards are a good funding option for smaller-scale extensions. However, you’ll need to consider your credit limit and the interest as well. You can use your credit to fund a kitchen extension and additional washroom build. If you are doing a larger extension project, you can use your credit to cover extra or surprise expenses. To avoid credit problems, avoid using more than 50% of your total credit.
Credit reference agencies or credits will think you’re not managing your credit smartly. Also, cash advances generally have extremely high interest rates. Carefully assess if you can afford it and create a repayment plan.
- Further advance
This refers to requesting more money on your current home loan. A mortgage lender can approve a further advance depending on your existing home equity and the potential increase of property value once the extension is completed. For this, you might need to make overpayments to clear out the balance quickly. Also, taking a further advance will involve new arrangements like having a higher rate than before. On the positive side, this is generally cheaper than secured loans and you don’t need to switch lenders.
Make sure to consider your financial situation and exact goals when choosing the right funding strategy. Don’t hesitate to seek advice from a financial expert in case you are not sure what to choose and how to proceed. In addition, talk to different building contractors so you can get a clearer idea of how much the project will be.