What is Additional Borrowing? A Quick Overview
When you take out additional borrowing, it means securing extra funds against an existing mortgage. This can be an effective way to access money for large expenses such as home improvements, debt consolidation, or other personal needs, without having to take out a completely new loan. This type of borrowing is popular among homeowners who have built up equity in their property.
How Does Additional Borrowing Work?
When you apply for additional borrowing, you essentially increase your mortgage balance. The amount you can borrow depends on factors like:
• The equity in your home (the difference between your home’s value and your current mortgage)
• Your income and credit history
• The lender’s criteria for maximum loan-to-value (LTV) ratios
When Should You Consider Additional Borrowing?
Additional borrowing is worth considering when:
• You need to fund home renovations or major purchases.
• You want to consolidate debt with lower mortgage interest rates.
• You’ve built up significant equity and can access that capital affordably.
What Are the Risks?
While additional borrowing can offer access to funds at lower interest rates, it’s important to understand the risks:
• Increased debt: Your mortgage balance increases, leading to potentially higher monthly repayments.
• Risk of repossession: Failing to meet repayments on your new mortgage total could lead to losing your home.
• Longer loan term: You may extend the term of your mortgage, meaning it will take longer to pay off.
