MoneyHelper advises comparing affordability and total cost rather than assuming mortgage borrowing is cheapest merely because the interest rate is lower. [1]
Begin with a cash-flow plan
Write down the complete project budget and the dates on which deposits, fees and building payments may be needed. Separate money already available from borrowing that is only being discussed. Do not treat an online illustration as funds you can spend.
For savings, decide what must remain available for household emergencies and essential commitments. Use that decision to establish the amount genuinely available for the project, rather than treating your entire balance as a building budget.
Borrowing more from your existing lender
A further advance is additional borrowing from your current mortgage lender. It is secured against your home and normally assessed for affordability; the rate and term need not match the existing borrowing. Compare the additional repayments and the total cost over the proposed term. [1]
Ask whether the extra borrowing can be repaid over a shorter period, what fees apply and what documents the lender needs. Keep the funding assessment separate from the assumption that the work will increase the property's value.
Remortgaging
Remortgaging involves changing the mortgage arrangement, rather than simply adding a personal loan. Compare product costs, any early repayment charge on the existing deal, valuation or legal expenses and the effect on the whole balance being refinanced. [2]
A useful comparison should show the cost of leaving the existing mortgage in place as well as the cost of replacing it. Ask the adviser to explain both the monthly difference and the total payable over a comparable period.
Personal loans and second mortgages
An unsecured personal loan is an alternative to additional mortgage borrowing, but the repayment period and total cost still need checking. A longer mortgage term can outweigh a lower interest rate. Do not compare interest percentages without also comparing the amount and duration borrowed. [1]
A second-charge mortgage is different: it is another loan secured against the property, sitting alongside the first mortgage. MoneyHelper warns that missed secured-loan payments can put the home at risk. It should not be treated as an interchangeable, low-risk alternative to an unsecured loan. [3]
Match finance to the proposed work
Before signing the construction contract, ask the lender or regulated mortgage adviser to confirm the permitted use of funds, any valuation or consent requirements, release arrangements and offer expiry. Request a plan for what happens if the works cost more or the timetable moves.
Compare options using the same project amount and clear repayment assumptions. Obtain an individual affordability assessment before choosing secured borrowing, including the lender, product, interest rate and borrowing limit.