General Contractor Guide for Payment Options
How Can I Finance My Building Project Do it Yourself Tips for Payment Options
Having decided to go ahead on your building project, you will have to think about how to pay for it!
The best news would be that you qualify for a grant. This could be available if you have an unusual property, a listedbuilding or a generous local authority. For the present purpose I will assume that no grants are available.
You will know how much money is available in your bank and savings accounts. The temptation is to borrow the difference. Sometimes it is possible to release other money. Now is certainly a good time to sit down and carefully consider how much you have tucked away for a rainy day.
Review Your Savings
Remember those long forgotten National Saving Certificates, Premium Bonds and Post Office Investment accounts? These can all be used. You may have an old Bank or Building Society account that you do not use that may have funds in. These can be added to your total savings.
You may also have 'windfall' shares or privatisation shares and could be pleasantly surprised at their valure. The reason why you obtained them is history. Your circumstances are changing constantly and you need to think carefully whether your priorities have now changed. Should you hold onto them or can you use the money? Even if some of this cash is held for a 'rainy day', it can be used and replaced from your income. Perhaps today is that 'rainy day'. The monthly cost of replacing your capital is likely to be less than the cost of borrowing from a bank or finance company.
Think Before You Withdraw
Many investors have purchased investments that enjoy favourable tax treatment. This include Personal Equity Plans, Tax Exempt Special Savings Accounts and Individual Savins Accounts, known respectively as PEPs, TESSAs and ISAs. Investment companies, banks and building societies offer these. You should think carefully or take professional advice before withdrawing money from these because you would lose the tax advantage.
You should definitely take advice before cancelling any life assurance policies, as consideration needs to be given, not only to any possible charges, but also to the loss of protection benefits such as life assurance.
Preparing to Take A Loan
Most people after sorting out exactly how much they can contribute from their own resources will still need to borrow money.
Several sources are available and the questions to consider are:
How much?
For how long?
Can I afford the repayments?
Normally the time scale of the loan will determine the source of the finance. If the amount to be borrowed is small and could be repaid from your income, you should avoid taking long-term credit and paying arrangement fees or other charges which can be excessive.
Loans up to 12 months
A bank overdraft, supplemented by a credit card balance may be suitable, but ensure that the APR (Annual Percentage Rate) on your credit card is competitive. Deals for switching credit card balances are often available and can be considered.
Loans up to 5 years
If you need to borrow month for up to five years, a bank loan should be considered because the load will be repaid reasonable quickly and the interest rate is competitive. Shop around because your own bank may not necessarily offer the best deal. Other banks, building societies and finance companies offer loans.
If you have a mortgage, the lender may consider a 'home improvement loan'. Finance companies also offer loans and the interest rate will depend upon the nature of the project and your personal circumstances.
The message is 'shop around'. The market is very competitive.
Loans above 5 years
If the project is for a house, which is mortgages, a good rate will be available from a mortgage lenders. But if you include the cost of your project with a mortage you will pay interest on the money for many years. This is only suitable if the project adds value to the house and you need to spread the payments over a long period to reduce the monthly cost.
Ask your mortgage lender the terms which they will offer for a 'further advance'. If the charge more than the standard rate for house purchase, you should consider switching lender.
Re-mortgaging
In any event, now could be the time to consider a re-mortgage, especially if your existing mortgage does not carry early redemption penalties. Even if the house is paid for, you could take a new mortgage to finance the project.
But remember, you would be financially disadvantages if you borrow money and are unable to pay it back and your home is at risk if you fail to keep up the payments on a mortgage or other loan secured on it.
Importance of Protection
Various protection products are available, some of which are listed below.
Mortgage Protection
This is a life assurance policy where the amount payable on death reduces each year to closely match the outstanding mortgage debt. Modern policies can include critical illness benefit and cover both parties to the mortgage. This means that the mortgage should be repaid in full if either party to a mortgage suffers a serious illness or does not survive the mortgage term.
Payment Protection
This is a policy which will pay the monthly mortgage costs, plus other expenses, for up to two years, if the policy holder is unable to work as a result of long term sickness or redundancy.
This article is for general guidance only. It is recommended that you seek specific advice from an Independent Financial Adviser before taking any long term decisions relating to the issues raised.