‘Should we top up our mortgage to pay for our home renovation?’

QWe want to renovate our house and we’ve had the job priced at €30,000. Someone suggested that we pay for it with a mortgage top-up. We’re afraid to touch the mortgage because we have €320,000 outstanding, with 30 years left on it, but the house is valued at €600,000 now, which is surely beneficial. Should we go for the top-up?

Seán, Co Kildare

AAssuming you have a good credit history, and depending on your lender’s terms and conditions, a mortgage topup could suit, but so too could a home improvement loan from your bank or credit union. As with all loans, you need to work out the actual cost of the monthly repayments and if you can afford the increase in the repayments.

We always recommend people seek independent financial and legal advice when making a decision like this.

For a mortgage top-up, you may be able to borrow as much as 90pc of the current value of your property. There is typically a minimum top-up amount of around €10,000 to €25,000. So if your property is worth €600,000 and your mortgage is €320,000, you may be able to borrow an additional €220,000.

But as this is an additional mortgage to the one you already have, the top-up can have a different interest rate, be paid back over a different time period, or even have a different repayment date to your current mortgage.

If you were planning to use the mortgage top-up to improve the energy efficiency of your home, and you increased your building energy rating (BER) to B3 or higher, you could be able to switch your entire mortgage – including the top-up – to a green mortgage rate.

These rates represent some of the lowest on the market. Our website, ccpc.ie, provides a free, independent tool to compare mortgage rates.

Bear in mind that if you do decide to top up your mortgage, you would need to complete a full mortgage application, just as you did when applying for your current mortgage, and there would likely be associated costs.

These may include valuation fees, legal fees, increases in your mortgage protection insurance, and, of course, an increase in the amount of interest on your overall mortgage.

Don’t forget that if you’re having your home renovated, you would also need to contact your home insurance provider, and the renovation could increase your insurance premium.

You should also consider what interest rates your bank offers on personal loans for home improvement and also on green home improvement loans, as these may be cheaper than a mortgage top-up once you include all the associated mortgage application costs.

That’s easier than it sounds. The personal loan comparison tool on ccpc.ie will show you the total cost of credit of each option.

If you’re a member of a local or workplace credit union, you should also contact them to check the rates they offer on home improvement or green home improvement loans.