This Is Money, 12th November 2013, Should I use a personal loan, credit card or remortgage to fund my loft conversion?
How can I raise the £15,000 I need for a loft conversion?
My mortgage has a rate of 3.5 per cent, but that would mean extra borrowing. I see there is a personal loan with HSBC available at 4.8 per cent. I could also use a 0 per cent credit card to pay for a portion.
Given this, is there any point in remortgaging?
Ben Thompson, managing director of the Legal & General Mortgage Club, replies: The best first step is to quickly understand the options that you might have, so if you do hold a mortgage it is certainly worth speaking with your existing lender and perhaps an independent intermediary as well.
Mortgage rates and personal loan rates are low now compared to historical levels, which makes doing this a good thing in terms of timing.
Sometimes however it can be hard unless you have an A1 perfect credit record to actually secure a headline loan rate that on face value looks attractive, so make sure you could actually get the rate advertised.
Most importantly, decide over what period you wish to repay the loan. Personal loans are on a monthly basis more expensive but are run over a shorter term, so are discharged more quickly than your typical mortgage. Holding a loan of this size over a full mortgage term would be expensive, so only do this if you really have to depress your monthly outgoings.
Decide upon what you can afford to commit to monthly, and if you can repay this over say 5 years not 20 or 25, the loan would be the better way to go. The reverse obviously applies.
Fundamentally though, loft conversions usually add value not just to your living standards but also you will make money on what you spend, through house price appreciation, so this is a good thing to do once you know you can definitely afford to commit.
Utilising ‘free’ credit card rates for a portion will make the outlay cheaper still, just watch out for the terms and conditions and potentially a charge should you physically pay the building firm by credit card, or withdraw cash on the card, those bits may not be free.
Kevin Mountford, head of banking at MoneySuperMarket, replies: For anyone looking to fund home improvements there are a number of options available, but you need to consider how much you can afford, the length of time you want to repay the loan over and whether the option offers a fixed or variable rate of interest.
If you have equity in your home then remortgaging may be an option, but remember that borrowing in this way could cost you more once interest and the term of the loan is taken into account, especially if you are on a variable deal as interest rates are likely to rise in the future.
Alternatively a personal loan or an interest free credit card could be an option. A personal loan allows you to pay off the loan over a set period of time at a fixed rate of interest. For example, borrowing £15,000 over 5 years on a Derbyshire Building Society loan at 5 per cent APR would cost £282 a month.
An interest free credit card such as the Tesco Clubcard Credit Card offering 0 per cent for 16 months on purchases may be another option but bear in mind the credit limit you will receive is likely to be much lower and you would have to pay off the balance before the promotional offer expires otherwise the interest charged will be 18.9 per cent.
Nicola Georgiou, managing director at Freedom Finance, replies: Although personal loan rates are falling, these rates are only going to apply to a very small proportion of borrowers who have a squeaky clean credit score.
The vast majority will get a higher rate after applying or will be declined outright.
Remortgaging does in fact usually offer the lowest rates but check for any early redemption penalties on your current mortgage – if you want the freedom to switch in future, it’s likely to be very costly. You may also want to consider taking out a secured loan, which allows you to borrow more if a remortgage or unsecured loan isn’t a suitable option.
The advantage of loans secured against your property is that they often allow longer terms, which would keep your monthly repayments more manageable.