Looking to improve your home or purchase a new car? Borrowing more on your mortgage can be a great way to fund these purchases.
In this guide, we’ll cover how additional borrowing works to help you decide if it is the right choice for you.
Can you borrow more than the value of the house you’re purchasing?
Yes, you can often borrow more than the value of the house you’re purchasing, but this isn’t an option that is available to everyone.
Lenders will typically refer to this as a 100% loan to value (LTV) mortgage with a further percentage for the additional amount.
What is additional borrowing on a mortgage?
Additional borrowing allows you to apply for more money on your current mortgage for an agreed purpose. The new borrowing is secured against the value of your home, with some lenders lending up to 90% of the value of your property.
Additional borrowing can be used for many reasons, including home improvements or to buy another property.
Why would you borrow extra on a mortgage?
Homeowners may want to borrow extra on their mortgage for a number of reasons.
The most common reasons to borrow over include:
- Home improvements – This is usually the most common reason for borrowing extra money. You can actually increase the value of your home through renovations or make your home more suitable for your living needs by extending or adding specialist medical equipment.
- Transfer of equity – When a mortgage has been taken out by a couple, both parties will be responsible for the mortgage, regardless of whether they both still live in the property.
When a relationship breaks down, many will borrow more on their mortgage to allow them to buy the other party out of the mortgage/property. This then results in the property and mortgage being held in the same name going forward. - Capital raising – This is a form of additional borrowing that will allow you to borrow more to fund an investment, such as a new car or to purchase another property.
How much more can you borrow on a mortgage?
When you extend your existing mortgage to borrow, how much you can actually borrow depends on various factors.
Some of the factors depend on:
- The increased equity in your property compared to when you initially took out the mortgage;
- Potential improvements in your financial situation;
- Improved credit scores;
- The lender’s assessment of your affordability.
Each lender has different criteria, and so it is advisable to consult a mortgage advisor, such as our team at Barlow Irvin, to understand your specific borrowing capacity.
Will you be charged fees if you borrow more on a mortgage?
Whether you need to pay a fee for borrowing more on a mortgage really depends on your lender, the mortgage product and your individual circumstances.
If you are simply extending your mortgage with your current lender, you may not have to pay any fees since you are already a customer and they are already lending on your property.
If you are looking for new deals with a new lender, fees are more likely to apply and could include arrangement or application fees.
Pros and cons of borrowing more on your mortgage
Before you decide whether you should borrow more on your mortgage, it is worth weighing up the pros and cons.
Pros of borrowing more on your mortgage:
- Cover necessary expenses – The biggest benefit of borrowing extra money is that you can immediately pay for necessary home repairs, debts or new properties.
- Potentially lower interest rates – In a low interest rate environment, you may be able to get lower interest rates on a mortgage than with other financing options.
- One monthly payment – If you’re using the extra funds to repay and debt payments, you’ll only have to worry about making one monthly payment rather than multiple ones.
Cons of borrowing more on your mortgage
Interest will be paid for the lifetime of your mortgage – Borrowing on your mortgage may help for necessary or desired home improvements, but you will pay interest on the funds.
Larger down payment – Most lenders will require a down payment of 3% to 20%. By increasing your loan amount, you may have to come up with a higher down payment.
Higher loan payments – With higher loans come larger payments. Borrowing on your mortgage could add a significant amount of money to your monthly repayments.