Home » Using Equity for Home Improvements: Is It a Good Idea?

Using Equity for Home Improvements: Is It a Good Idea?

For homeowners looking to fund renovations or major home upgrades, tapping into home equity can be a viable solution. Home equity loans and equity release products allow you to unlock the value tied up in your property to finance improvements. However, using equity comes with both opportunities and risks that need careful consideration. This guide explores how equity-based funding works, its benefits and drawbacks, and whether it’s the right choice for your home improvement project.

Check your eligibility

Check now

Won’t harm your credit score

Table of Contents

For homeowners looking to fund renovations or major home upgrades, tapping into home equity can be a viable solution. Home equity loans and equity release products allow you to unlock the value tied up in your property to finance improvements. However, using equity comes with both opportunities and risks that need careful consideration.

This guide explores how equity-based funding works, its benefits and drawbacks, and whether it’s the right choice for your home improvement project.

Need a Loan? Check your Eligibility

What Is Home Equity?

Home equity is the portion of your property you own outright. It’s calculated as the difference between your property’s current market value and any outstanding mortgage or debt secured against it.

Example:

  • Home Value: £300,000.
  • Outstanding Mortgage: £150,000.
  • Home Equity: £150,000.
Home Improvement Loans

Options for Using Equity for Home Improvements

1. Home Equity Loans

A home equity loan allows you to borrow against your equity with a lump sum that’s repaid in fixed installments over a set period.

Key Features:

  • Interest Rates: Typically lower than unsecured loans.
  • Loan Amounts: Dependent on your equity and lender criteria.
  • Risk: Your property is collateral, meaning failure to repay can result in repossession.

Best For: Large-scale projects like extensions or significant renovations.

2. Equity Release (Lifetime Mortgages)

Equity release is available to homeowners aged 55 and over, allowing you to access equity while continuing to live in your home.

Key Features:

  • No Monthly Repayments: Loan and interest are repaid when the property is sold (usually after death or moving into care).
  • Tax-Free Lump Sum or Income: Flexible payout options.
  • Risk: Reduces the value of your estate for inheritance purposes.

Best For: Retirees seeking to fund home improvements without monthly repayment commitments.

Pro Tip: Visit our guide to secured loans for alternative secured borrowing options.

3. Remortgaging

Remortgaging involves switching your current mortgage to a new deal, borrowing extra funds for home improvements.

Key Features:

  • Interest Rates: Often lower than personal loans or credit cards.
  • Fees: May include early repayment charges or arrangement fees.
  • Risk: Extends the term or increases the size of your mortgage.

Best For: Homeowners looking to refinance their property to fund medium- to large-scale projects.

Benefits and Risks of Using Equity for Home Improvements

AspectBenefitsRisks
Lower Interest RatesSecured loans or equity release products typically have lower rates than unsecured options.Risk of repossession if you fail to meet repayment terms.
Increased Property ValueRenovations may increase your home’s market value, potentially offsetting the borrowing costs.Reduced equity can limit future borrowing or inheritance value.
Flexible Borrowing OptionsEquity can be accessed through loans, remortgages, or lifetime mortgages, tailored to your needs.Early repayment fees and arrangement costs can add to overall expenses.
Tax-Free AccessEquity release provides tax-free funds for eligible homeowners.Interest on lifetime mortgages compounds, increasing the total repayment amount.

Is Using Equity a Good Idea?

Whether using equity for home improvements is a good idea depends on your financial situation, goals, and the scale of your project.

When It’s a Good Idea:

  • You have substantial equity and a solid repayment plan.
  • The renovations will significantly increase your home’s value.
  • You are over 55 and need flexible funding options without immediate repayments.

When It’s Risky:

  • Your income is unstable, making repayments challenging.
  • You have little equity remaining, limiting future financial options.
  • You’re uncertain about the impact on inheritance or long-term financial goals.
Secured Loans

FAQs

1. How much equity can I borrow for home improvements?

The amount varies by lender and product, but most home equity loans allow you to borrow up to 80-90% of your available equity.

2. Are equity release products safe?

Yes, if they are regulated by the Financial Conduct Authority (FCA). Look for lenders that adhere to Equity Release Council standards.

3. Can I use equity for small projects?

Yes, but ensure the borrowing cost aligns with the project’s value. For smaller projects, unsecured loans or credit cards may be more suitable.

4. What happens if I sell my home after using equity?

For home equity loans, you’ll need to repay the outstanding balance. With equity release, the loan and interest are repaid from the sale proceeds.

5. Are there alternatives to using equity?

Yes, consider personal loans, government grants, or saving over time. Explore options in our guide to home improvement loans.

Using home equity for renovations can be a smart financial move, offering flexible funding with competitive interest rates. However, it’s essential to weigh the benefits against the risks, consider long-term implications, and ensure you choose the right option for your circumstances.

For more information, explore our resources on home improvement loans or consult our guide to low-interest home improvement loans.

Need a Loan? Check your Eligibility

Spread the Word

Discover More with Our Related Posts

How to Choose the Best Bad Credit Loan for Your Needs

If you have a poor credit history, finding a suitable loan in the UK can be a stressful experience. Many mainstream lenders will either reject your application outright or offer you high interest rates that can strain your budget. Still, bad credit loans exist precisely to help people who don’t meet standard lending criteria. The challenge, though, is identifying the right loan product from a market filled with different terms, fees, and repayment structures. This guide will help you determine the best loans for poor credit by walking you through key factors to consider, from annual percentage rate (APR) to repayment flexibility. We’ll also share practical tips on improving your chances of approval and highlight resources on the Squared Money website for further guidance. By applying a methodical approach to choosing a bad credit loan in the UK, you can secure funding that matches your needs without adding undue financial stress.
Read more

Bad Credit Loans for Small Business Owners

Running a small business in the UK requires determination, passion, and often, access to finance. However, if you have a poor credit history, securing funding can seem daunting. Traditional high-street banks typically offer stringent lending criteria, leaving many entrepreneurs feeling shut out. But there are still viable options for small business loans with bad credit. This article explores how to find funding for entrepreneurs with poor credit and outlines the alternatives available to you as a small business owner. We’ll also discuss practical steps to improve your creditworthiness, helping you access better financing terms over time. With the right information and strategy, you can position your enterprise for success—even if your credit history is far from perfect.
Read more

Payday Loans vs Bad Credit Loans: What’s the Difference?

For many people facing financial challenges—especially those with poor credit scores—securing funding can feel like an uphill battle. Payday loans and bad credit loans are two common options that might appear to solve immediate cash-flow concerns. However, these lending products differ significantly in terms of interest rates, repayment structures, and long-term impact on your finances. Understanding these differences is essential to making an informed decision and, most importantly, avoiding a cycle of unmanageable debt. In this article, we’ll compare payday loans vs bad credit loans in the UK, looking at how each works, the pros and cons of each option, and what you should consider if you’re exploring either route. We’ll also discuss potential alternatives to payday loans and share key insights to help you choose the right path for your financial situation.
Read more