When you finally decided to buy a house to turn it into a home, you didn’t think that you could be one (or two). Or simply that your needs or tastes would change over the years and you would need a change. If you have been considering giving your home a makeover for some time or you need to adapt your home to your new needs, the comprehensive renovation of your home seems to be the step to follow. Once that point has been reached, many people are concerned about how to finance this long-awaited comprehensive reform. Although renovation loans are one of the most common options, if you are still paying the mortgage on your home, extending your mortgage to renovate your home is a more than interesting alternative. Read!
Extending a mortgage to renovate your current home
If, as we said, we want to undertake a comprehensive renovation of our home and we are still paying the mortgage on it, extending our current mortgage is not only possible, but it is a very good option. One of the main advantages of this process is that it allows you to finance the renovation of the home by paying a single installment per month, unlike if we opt for a personal loan. In addition to this reason, extending the mortgage to renovate our house is much cheaper than a personal loan. Loans usually have an average interest of 8%, while a mortgage usually pays 2% on average. The process of extending the mortgage is known as a mortgage novation.
What is a mortgage novation?
A novation consists of changing any clause of the mortgage by means of an agreement with the bank with which the mortgage was made. With this we can improve the clauses or adapt them to the current circumstances, in this case obtain financing for our comprehensive reform. The main purpose of novation is to increase the amount or number of monthly installments. In the case we are dealing with, to extend the mortgage for a renovation, this novation will serve so that the mortgagee can have money and greater liquidity, the perfect solution to be able to carry out the desired reform.
Requirements to extend the mortgage to renovate your home
Financial institutions do not grant novations in all cases, but they comply with certain requirements. The first of these would be to be up to date with the payments of the previous mortgage. The bank will also verify that our level of indebtedness is acceptable and that we do not have other mortgages. In addition, the bank will finance and check if we have a solvent profile as a customer. To be considered solvent, it is important that our employment situation is stable and can be demonstrated. Some banks may also request a guarantee in case of non-payment. If the bank accepts the conditions of the novation, there are a number of steps to follow. These steps entail associated expenses that we are going to break down below.
Expenses to expand reform
- Financial institutions usually charge a cancellation fee, although there are some that do so at zero cost. If this fee is applied, it will always range between 0.1% and 1% of the outstanding capital.
- Modifications to the mortgage for the renovation must be deeded before a notary, registered in the Land Registry and go through the agency. Of these expenses, 50% of the total will have to be paid.
- When increasing capital, a new appraisal must also be remunerated.
Advantages and disadvantages of extending a mortgage for renovation
Advantages
As the interest on a mortgage loan is lower, the main advantage of extending the mortgage to carry out your renovation is that it is cheaper than asking for a personal loan. Although a personal loan takes less time to formalize and does not have as many requirements, it will always have higher interest rates. The financial freedom offered by extending the mortgage is much greater than this and other alternatives. Thinking about the comprehensive renovation of our home, in addition to making us get the house of our dreams, we will be able to revalue our home. When it appreciates, if at some point we consider selling the house, it will be much easier to recover the investment.
Disadvantages
As we mentioned before, extending the mortgage to reform requires the approval of your financial institution. This is one of the few and relative drawbacks that there can be, since it is a frequent operation and banks do not tend to have many drawbacks. Another disadvantage may be that as the total cost of the mortgage increases, interest also becomes more expensive. This depends on how the interest rates are at the time you want to carry out the operation or the remaining capital to be repaid on the mortgage after extending it to renovate your home. It also varies according to the conditions of the financial institution, although everything is to consult it.
Take the step of extending your mortgage to renovate your home
In addition to extending the mortgage to carry out the desired reform, we cannot forget that there are grants that are totally complementary to this option and that can help us take the step. There are different rebates and grants linked to the renovation and energy reform of homes and buildings, including discounts of up to 60% on personal income tax in many of the renovations. If you need professional advice, do not hesitate to contact Kaleidoscope to help you make the right decision when it comes to getting your dream home.
