Home improvements can be a costly but necessary expense and paying for them can take a lump out of your earnings. So, here are some tips to make it easier.
The good thing about opting to use your savings for home improvements instead of getting a new car, or on a holiday for example, is that besides making your home a nicer place, you’ll be making an investment. With the right improvements, you can increase the value of your home exponentially.
For example, according to estimates, installing a modern bathroom can add as much as 3% to your home’s price tag, and a decent new kitchen can add up to 5%.For those with cash to hand, the most sensible option could be using it to fund a home improvement project, considering how savings rates are so low these days. Nonetheless, if your money is tied up in for example a fixed rate bond, it’s not worth paying the possible penalty to get your cash out, in case you are able to get it out in the first place. Don’t forget that if you choose to withdraw funds from a cash ISA, you might not be able to top up the allowance once more in the same tax year.
However, the main drawback of paying with cash directly is that you wouldn’t be protected in case something goes wrong, such as the company hired to do the work turning out to be fraudsters, or going bust altogether. As such, it’s a good idea to put the cost on a credit card, even if it’s just the deposit, and then using your cash to pay it off, as explained below.
When you use a credit card to fund the home remodeling or refurb, and the work never gets completed or turns faulty because the company goes bust, you can ideally claim your money back from the card provider.
This is true even in cases where you only paid the deposit with your card. As long as the total bill ranges from between $100 and $60,000, you’re either covered under the Consumer Credit Directive or the Consumer Credit Act. Using your card for the payment locks this protection in place.
In case you don’t have money squirrelled away in savings to clear the balance with, it’s best to get a card that charges a 0% introductory fee on purchases. These will allow you to clear the debt during this interest-free period, preferably by monthly direct debit.
Tesco’s Clubcard Credit Card for Purchases and Santander’s Credit Card for Purchases are currently offered with the longest interest-free periods on any new purchases. Both offer an 18 months interest-free period at 0% before they jump to a representative APR of 18.9% (varies).
If you shop at Tesco regularly, then the Clubcard credit card might be ideal for you, since it lets you rack up your Clubcard points much faster. You will be getting a point for every dollar you spend in Tesco, and a point for every four dollars you spend elsewhere. But if you’re looking to clearing your debt sooner, consider throwing in some cash back instead.
For example, the American Express Platinum Purchase Cashback card offers you 16 months at an interest of 0% and a 1.25% cashback for all purchases, which means that you can not only spread the cost of your home improvement without having to pay interest, but also get your money back on them.
When this 16-months honeymoon period is over, you pay an APR of about 18.7% (variable) with the $25 annual fee factored in. But you’ll need to be quick because the card is only available for a limited time only in a year.
For those who bank with Nationwide, their Select Card offers 0.5% cashback and 15 months at 0% interest on new purchases. They then charge you a representative APR of about 15.9% (varies).
But if your credit card limit can’t stretch to the cost of a home refurb, unsecured personal loans are currently offering a great value, with some of the lowest rates ever.
if you are planning to undertake a major home improvement project such as adding a conservatory or converting the loft, you might be looking at spending well over $10,000. In such a case, taking out a personal loan might be the best way to fund it.
Sainsbury bank is one of the best loan providers around, and its standard personal loan now comes with a market leading and one of the best APR rates just 4.4%. However, this rate only applies to loans of between $7,500 and $15,000 with the repayment plans of between one and three years. In case you need a longer time to repay, the bank also has great rates on senses borrowing with an APR of 4.5% in a 4- to 5-year repayment terms.
Santander has a slightly higher rate of about 4.5% standard on the same borrowing levels to everyone. However, for the existing customers, it goes a bit further by extending the same loan to about $20,000. So, if your home improvement project is a huge one, it might be a good idea to make a switch to the bank’s 123 account before you apply.
Depending on your situation, there is another viable option - letting the house raise money for its improvements. You could also consider a guarantor loan and can compare guarantor loan providers here.
If your home improvement plan involves building an extension, try approaching your mortgage lender and find out if you can free up some cash with a further advance. But since you’re borrowing an extra amount against the value of your own property, this is not a decision you can afford to take lightly. The extra funds might not be offered at the same rate as for example, the rest of your mortgage. Furthermore, it might even tie up more of your cash for a given period. In case this doesn’t tally well with the different tie-ins of the main mortgage, renewing the deal can get a bit tricky.
However, if your current mortgage deal is almost coming to an end, you can actually move the whole loan including the extra amount required for the work, to fetch a lower rate. For example, West Brom Building Society offers a market leading fixed rate of 1.48% for the first two years and then jumps to 3.99%. Be sure to shop around for more options and compare a wide range of available products.