Should I get a home improvement loan or remortgage?

What is a home improvement loan?

A home improvement loan is money you borrow specifically to improve your property. It does not affect any existing mortgage you may have – you simply take out a separate loan alongside it.

You borrow a fixed amount and pay it back in monthly instalments over an agreed period, usually between one and 30 years. The lender charges you interest on top of what you borrow.

These loans can be secured or unsecured.

• Secured loans use your home as security, which often means you can access lower interest rates and borrow larger amounts. However, because your home acts as this security, you could lose your property if you fall behind on payments.
• Unsecured loans (sometimes called personal loans) don't require security but as a result will usually have higher interest rates.

What does remortgaging mean?

Remortgaging means you replace your current mortgage with a new one. Many homeowners remortgage to release “equity” – the difference between your home's value and what you still owe on your mortgage.

Example: If your home is worth £250,000 and you owe £150,000, you have £100,000 in equity. You could remortgage for £180,000, pay off your original £150,000 mortgage, and use the extra £30,000 for home improvements.

You make one monthly payment on your new, larger mortgage instead of juggling two separate payments.

Comparing the two options

Both options let you fund home improvements, but they work differently. Here's how they stack up:

Factor	Home improvement loan	Remortgaging
Cost	Typically higher interest rates, especially for unsecured loans. However, fewer upfront fees to pay.	Often lower interest rates because it's secured against your home. But comes with fees (arrangement, valuation, legal) that can add up to thousands of pounds.
Simplicity	You keep your current mortgage (if you have one) and add a second loan, meaning two separate payments to manage each month.	One single monthly payment to manage, which many people find easier and clearer for budgeting.
Time	Usually quicker to arrange – you can often get approval in days, so you can start your project sooner.	Takes longer – typically several weeks – because it involves more documentation and legal processes.
Flexibility	Gives you the exact amount you need for your specific project without affecting any existing mortgage.	Commits you to a larger, longer-term debt as you're borrowing against your home's equity.

 

When should you choose a home improvement loan?

A home improvement loan might suit you better if:

• You have a great mortgage deal: If you're on a low interest rate or in a beneficial fixed-rate period, you don't want to lose it. Breaking your mortgage early usually means paying early repayment charges, which can be expensive.
  
  
• You need money quickly: Home improvement loans tend to process faster than remortgages. If your builder / contractor needs payment soon or you want to start work immediately, this speed matters.
  
  
• You're borrowing a smaller amount: For smaller projects, a separate loan can often make more sense than remortgaging your entire property.
  
  
• You want shorter repayment terms: Home improvement loans let you choose shorter repayment periods, helping you clear the debt faster and pay less interest overall.
  
  

When should you remortgage?

Remortgaging could be your best option if:

• You're near the end of your mortgage deal: If your fixed or discounted rate ends soon, you'll move onto your lender's standard variable rate anyway. This could make it the perfect time to remortgage and release equity.
  
  
• You're borrowing a large amount: For major projects, spreading the cost over your mortgage term at mortgage rates could save you money on interest.
  
  
• You want one simple payment: Managing one monthly payment instead of two separate ones can make budgeting easier.
  
  
• Lower rates are available: If mortgage rates have dropped since you took out your current mortgage, remortgaging could reduce your monthly costs even with the larger loan amount.

Things to consider carefully

Before you decide, think about:

• Your age: Lenders usually require you to pay off your mortgage before you reach a certain age, typically between 70 and 85. If you're older, extending your mortgage term might not be possible.
• Your credit score: Both options require credit checks. A better credit score generally means better interest rates. If your credit has improved since you took out your mortgage, you might qualify for attractive deals.
• Your home's value: You typically need at least 10-20% equity remaining after you borrow. If property prices have fallen or you haven't paid off much mortgage, you might not have enough equity to remortgage.
• Long-term costs: Look beyond monthly payments. Calculate the total amount you'll repay over the full term. Sometimes lower monthly payments mean paying much more in interest overall.
• Your income stability: If your income is irregular or you’re expecting changes (maternity leave, retirement, redundancy), make sure repayments would still be affordable.

Making your decision

Both home improvement loans and remortgaging can fund your dream home improvements. Your best choice depends on your circumstances, your current mortgage deal, and how much you need to borrow.

Take time to compare interest rates, fees, and total costs. Use online calculators to see what you'd pay with each option. Consider speaking to a broker who can assess your situation and find the best deals for you.

Whatever you choose, make sure you can comfortably afford the monthly payments, even if your circumstances change. Your home should be a source of pride and security, not financial stress.