The quote says 34,800 and the account says 12,000
It is a good quote. Rear wall out, a steel over the new opening, the kitchen stripped and refitted, that half of the ground floor rewired and the whole lot skimmed, priced line by line with the steel and its padstones shown separately rather than buried in a lump. The builder has been on two houses in the street, holds the price for thirty days, and wants twenty per cent — 6,960 — before anyone arrives. Nothing about this needs a second opinion. What it needs is 34,800, and that is where the week stops.
The savings account holds 12,000. Of that, 8,200 is the reserve that exists so a February boiler failure is an inconvenience rather than an event, and spending it on cabinets converts one problem into two. So 3,800 goes into the job and 31,000 has to come from somewhere. The worked figures below are in pounds because the illustration has to be in something; every line of the arithmetic is currency-blind and behaves identically in dollars, euros or Canadian dollars.
Three questions decide this, and they get answered in a fixed order because each one narrows the next. What can be raised at all, which the house answers. What can be serviced month after month, which the income answers. And how long the debt lasts, which is the only one under your control after signing and the one that decides what the job actually costs. Most kitchen-table conversations skip straight to the third question's shadow — the monthly payment — and compare two offers on it alone. That comparison is worse than useless here, because on these two products the payment moves in the opposite direction to the total.
Equity is a number; borrowable equity is a smaller number
Take the house at 420,000 with 208,000 outstanding on a first charge that has three years left of its fixed period. Equity is 212,000, and that figure is worth writing down once and then setting aside, because no lender will lend against it. What a second-charge lender or a line of credit works to is a combined loan-to-value cap: the existing mortgage plus the new borrowing, measured against the lender's own valuation. At a combined cap of 85 per cent the total permitted borrowing is 357,000, the first charge already occupies 208,000 of it, and 149,000 is what remains. The 63,000 between that and the equity figure is not being withheld out of meanness. It is the margin that keeps the two loans inside the value if the market gives back fifteen per cent, which is exactly what an 85 per cent ceiling is arithmetically reserving, and it is the single most common reason a homeowner's own sum comes out higher than the lender's.
Where the cap comes from differs by market, and only one of them writes it into a rule. In Canada, OSFI Guideline B-20 sets a loan-to-value limit of 65 per cent for the non-amortising line-of-credit portion of a readvanceable mortgage, with the combined total including any amortising term portion held to 80 per cent — so a house carried entirely on a non-amortising line releases substantially less than the same house with a term portion doing the work, and either ceiling sits below the 85 per cent that is common elsewhere. In the United States, combined caps in the low-to-mid eighties are lender product policy rather than a regulation, though a home-equity plan carries its own disclosure regime under Regulation Z at 12 CFR 1026.40, including the brochure required by 1026.40(e), and Regulation Z's high-cost mortgage provisions at 12 CFR 1026.32 attach additional protections once a loan crosses the coverage tests. In the United Kingdom there is no statutory cap either; what changed is the regime. Second-charge lending moved out of the consumer credit rules and into the FCA's mortgage rules on 21 March 2016 under the Mortgage Credit Directive Order 2015, which is why a second charge now comes with an affordability assessment under MCOB 11.6 and an illustration that looks like a mortgage offer.
Two things move the answer after you have calculated it, and both move it downwards. The first is the valuation, carried out to the RICS Valuation – Global Standards and instructed by the lender rather than by you: a cautious desktop figure of 395,000 on the same house releases 127,750 at an 85 per cent cap instead of 149,000, and 21,250 has vanished without anything about the property changing. The second is affordability, which is assessed separately and can refuse a loan the equity plainly supports — under MCOB 11.6 in the UK, under the creditworthiness rules in CONC 5 for anything unsecured, and under the responsible lending obligations of the National Consumer Credit Protection Act 2009 and its National Credit Code in Australia. Having the equity and being lent against it are different events, and the gap between them is where most of the disappointment in this process lives.
| Basis | Total borrowing permitted | Released after the first charge | Where the cap comes from |
|---|---|---|---|
| Equity in the property | Not a lending limit | 212,000 — the figure to set aside | Arithmetic, not policy |
| 85% combined LTV | 357,000 | 149,000 | Lender product policy; common on term second charges |
| 80% combined LTV | 336,000 | 128,000 | Lender product policy; also the OSFI B-20 combined ceiling on a readvanceable mortgage |
| 75% combined LTV | 315,000 | 107,000 | Lender product policy, typically priced better |
| 65% LTV on a non-amortising line | 273,000 | 65,000 | OSFI Guideline B-20 — a limit on the HELOC portion itself, not a combined cap; keep an amortising term portion and the 80% row above is what binds |
| 85% cap on a 395,000 valuation | 335,750 | 127,750 | The same policy against a cautious valuation |
Enter the valuation you would defend to a stranger rather than the one you would quote to a neighbour, and run it twice — once at your best guess and once six per cent below it. The second figure is the one to plan the job around, because the valuation is instructed by the lender and arrives after you have committed to the builder.
Current market value.
What you still owe on the first charge.
The total borrowing the lender allows against the value.
Rate on the equity loan.
Repayment term.
Equity available to borrow
$120,000
Figures that depend on a rate wait for yours — this page does not assume one.
- Total equity in the property
- $180,000
- Maximum total borrowing at the stated CLTV
- $340,000
- Current loan-to-value
- 55 %
They open the calculator with your figures already in it
Home Equity Loan Calculator: 120,000 currency — shown in imperial, US market. The link sets both, so the result they see is the one on your screen.
What this calculation does not cover
- Total equity and borrowable equity are different figures — the lender's CLTV cap leaves a buffer you cannot access.
- Affordability is assessed separately. Having the equity does not mean the income supports the payment.
- The loan is secured on your home. Failure to keep up repayments puts the property at risk.
The other product is not a mortgage and is not regulated like one
An unsecured improvement loan is a different animal wearing similar language. There is no charge registered against the title, so there is no valuation, no conveyancing, no land registry work and no second lender with an interest in the house. A decision can arrive the same day and the money a day or two later, which on a job with a thirty-day price hold is not a small thing. In the UK it sits under the consumer credit regime rather than the mortgage one: pre-contract information under CONC 4, a creditworthiness assessment under CONC 5, and a right under section 66A of the Consumer Credit Act 1974 to withdraw within fourteen days of the agreement, repaying the credit with interest for the days it was held. In the United States it is closed-end unsecured credit disclosed under Regulation Z, and it specifically does not carry the three-business-day right of rescission at 12 CFR 1026.23 — that right attaches to credit secured by a principal dwelling, which is the very thing this product avoids.
What you pay for that is visible in two places. The rate is higher, because the lender's only recourse is you rather than a house. And the term is shorter and usually capped by the product itself, which feels like a restriction and is in fact the reason the total comes out where it does. The amount is capped too, so above a certain size the unsecured route stops being available at all and the choice makes itself. Put the sum you actually need against a term you can hold to, not the longest the lender will grant, and read the total rather than the payment.
Run 31,000 at the rate on your own decision-in-principle and then step the term from three years to seven, watching the total interest line rather than the payment. The payment falls by a little under five hundred a month across that range; the total interest rises by nearly seven thousand, and the second number is the one you are actually agreeing to.
The total amount financed.
The loan's annual percentage rate (APR).
How many years you have to repay the loan.
Estimated monthly payment
Needs your Annual Interest Rate (%)
This page does not assume a price. Enter yours and the answer appears here.
They open the calculator with your figures already in it
Home Improvement Loan Payment Calculator — shown in imperial, US market. The link sets both, so the result they see is the one on your screen.
What this calculation does not cover
- The formula is a fixed rate amortized to zero over the full term, which is only one of the shapes home improvement borrowing takes. A HELOC bills interest only during its draw period, so its early payment sits far below this figure and then steps up when repayment starts; a variable rate re-prices the payment every time the index moves; a balloon product leaves a lump sum due at the end. None of those is what this number describes.
- The total interest shown in the breakdown assumes every payment lands exactly on schedule and none of it early. Paying extra against principal cuts that total sharply and shortens the term, a missed payment adds fees and interest the schedule never sees, and a minority of loans carry a prepayment penalty that takes back part of what an early payoff would otherwise save.
Term is the expensive variable and rate is the one on the poster
Hold the sum at 31,000 and price the same money five ways. A second charge at an illustrative 7 per cent over fifteen years costs 278.64 a month and 19,154.62 in interest. An unsecured loan at 9.5 per cent over five years costs 651.06 a month and 8,063.46 in interest. The secured product is 2.5 percentage points cheaper and it costs 11,091 more. Every rate in this section is one illustration and none of them is a market fact; use the numbers on your own offers, because the point being made survives any reasonable substitution.
Separate the two effects and the size of each becomes obvious. Price the secured rate over the unsecured term — 7 per cent for five years — and the interest is 5,830.23. So 2.5 points of rate, over five years, is worth 2,233.23. Ten extra years of term, at the better rate, costs 13,324.39. The lever nobody negotiates is roughly six times the size of the one everybody does. Read the same thing as a unit price and it is starker still: the secured fifteen-year loan costs 617.89 of interest for every 1,000 borrowed, and the unsecured five-year loan costs 260.11.
This is also the arithmetic that catches the option most people take without treating it as an option at all — the further advance from the existing first-charge lender, added to the mortgage and left to run to the mortgage's own end date. At an illustrative 4.9 per cent over the twenty-one years remaining it costs 197.21 a month, which is why it feels like the sensible answer, and 18,695.71 in interest, which is 603.09 per 1,000 and almost exactly what the second charge at 7 per cent costs. The rate is 4.6 points below the unsecured loan and the money costs more than twice as much. Take the same further advance over ten years instead and it costs 266.93 per 1,000, level with the unsecured loan and beaten on the table only by the second charge run over five years at 188.07. The further advance is not the problem. Attaching it to a mortgage term chosen years ago for an entirely different debt is the problem, and it is invisible because the payment merges into a direct debit that was already leaving the account.
| Where the money comes from | Rate and term | Monthly | Total interest | Interest per 1,000 |
|---|---|---|---|---|
| Further advance, run to the mortgage's end date | 4.9%, 21 years | 197.21 | 18,695.71 | 603.09 |
| Further advance on a term of its own | 4.9%, 10 years | 327.29 | 8,274.79 | 266.93 |
| Second charge secured on the house | 7.0%, 15 years | 278.64 | 19,154.62 | 617.89 |
| Second charge on a short term | 7.0%, 5 years | 613.84 | 5,830.23 | 188.07 |
| Unsecured improvement loan | 9.5%, 5 years | 651.06 | 8,063.46 | 260.11 |
| Unsecured improvement loan, stretched | 9.5%, 7 years | 506.66 | 11,559.73 | 372.89 |
| Unsecured at a weaker credit tier | 12.0%, 5 years | 689.58 | 10,374.67 | 334.67 |
The clause that buys the low rate without the long term
Nothing above forces a fifteen-year loan to take fifteen years. Take the second charge at 7 per cent over fifteen years, then pay it at 651.06 a month — the unsecured loan's payment, the one you had already decided you could afford — and the balance clears in 55.9 months, at a cost of 5,422.35 in interest. That is 2,641.11 less than the unsecured loan and 13,732.27 less than letting the same secured loan run its stated term. It is the best outcome available on this page and it is not a product; it is a payment habit applied to a product, and it works only if two conditions hold. The agreement has to permit overpayment without a charge that eats the saving, and the overpayment has to be a standing order set up on the day the loan completes rather than an intention revisited each month.
So the clause matters more than the headline. A second charge in the UK is a regulated mortgage contract, and MCOB 12 requires any early repayment charge to be a reasonable pre-estimate of the cost to the lender of the early repayment — a rule about how the number is arrived at, not a promise that it is small, and on a fifteen-year term it can run for years. On an unsecured agreement the equivalent question is the settlement figure: the Consumer Credit (Early Settlement) Regulations 2004 set how the rebate is calculated and permit the settlement date to be deferred, which is why the figure you are quoted to clear the loan is higher than the balance on the statement and why it is worth asking for it in writing before assuming a five-year loan can be cleared in three. In the United States, Regulation Z restricts prepayment penalties on covered closed-end dwelling-secured transactions at 12 CFR 1026.43(g) and prohibits them outright on high-cost mortgages under the provisions at 12 CFR 1026.32, so the answer there depends on which category the loan falls into rather than on the lender's preference.
- Ask for the early repayment or early settlement position in writing before comparing anything — as a percentage by year on a second charge, as a worked settlement figure on an unsecured agreement.
- Establish whether overpayments are permitted monthly or only as lump sums, and whether an overpayment shortens the term or merely reduces the next payment. Only the first one saves interest at the rate the table above implies.
- Check what happens to the direct debit after an overpayment. A lender that recalculates the payment downwards will quietly undo the plan unless the standing order is set separately and left alone.
- Read whether the rate is fixed for the whole term or reverts, and if it reverts, re-run the payment at a realistic reversion on the balance that will still be outstanding on that date.
- For a second charge, confirm whether the first-charge lender has to consent to the second, and what it charges to give that consent.
- Ask whether the loan is portable if the house is sold inside its term, and what has to be redeemed on completion if it is not.
Borrow the contingency; do not go back for it
The number to borrow is not the number on the quote, and this is the point at which a well-researched financing decision quietly fails. A fixed price on a kitchen and a structural opening is a fixed price for the work that was drawn; it is not a fixed price for what is behind the wall that was opened to draw it. Fifteen per cent on 31,000 is 4,650. Borrowed with the rest at the start, on the illustrative unsecured terms above, it lifts the payment from 651.06 to 748.72 and adds 1,209.52 of interest across five years. That is the whole cost of never having this conversation again in week four of a six-week job.
The alternatives are not obviously worse in interest and are much worse in every other respect. A second unsecured loan later, at 12.9 per cent over three years, costs 982.31 in interest — less than the 1,209.52, because the term is shorter — but it is a fresh application, at whatever rate the file supports on that day, made by a household that now has a live improvement loan on its credit report and an unfinished ground floor. If it is declined, the fallback is a card at 24.9 per cent, costing 1,996.94 to clear over three years at a payment stacked on top of the first loan. And if the money is not found at all, the job stops, which is the most expensive outcome on the list and the only one with no interest rate attached to it: a builder who has moved to another site does not come back next week. One caveat in the card's favour, worth knowing before dismissing it entirely: in the UK, section 75 of the Consumer Credit Act 1974 makes the card issuer jointly liable with the supplier for misrepresentation or breach of contract where the cash price of the item is over 100 and no more than 30,000, which is a protection a bank transfer from a personal loan does not carry. Read that ceiling carefully before relying on it: it is measured on the cash price the supplier attached to the item, not on the amount put on the card, so a job billed as one 34,800 line falls outside it altogether while the itemised kitchen, the steel and the rewire each sit comfortably inside. Paying a deposit on a card against an itemised price and clearing it immediately buys that protection for the price of a few days' interest.
| When | How | Effect on the monthly outgoing | Interest on the 4,650 |
|---|---|---|---|
| At the start, inside the loan | 9.5% over 5 years, one application | 651.06 becomes 748.72 | 1,209.52 |
| Week four, second application | 12.9% over 3 years, if granted | 156.45 alongside the first loan | 982.31 |
| Week four, application declined | Credit card at 24.9%, cleared over 3 years | 184.64 alongside the first loan | 1,996.94 |
| Week four, nothing found | The job stops part-finished | Unquantifiable; the trades re-book elsewhere | None, and it is still the worst option |
Set the base to the quoted total and the percentage by what is unknown behind the wall rather than by habit: a straightforward refit on a house you have already opened up justifies the low end, and a structural opening in a pre-war property with no drawings of the drainage does not. The total it returns is the sum to apply for, not the sum to spend.
Your planned budget before adding a buffer for the unexpected.
The extra buffer to add for unexpected issues.
Total budget with contingency
$23,000
Contingency is a planning buffer, not a guarantee — projects that uncover major surprises (structural damage, code-required upgrades) can still exceed even a generous contingency.
- Contingency amount
- $3,000
They open the calculator with your figures already in it
Project Contingency Calculator: 23,000 $ (total recommended budget) — shown in imperial, US market. The link sets both, so the result they see is the one on your screen.
What this calculation does not cover
- The percentage is applied to the base budget as one flat multiplier, so every dollar of the job is treated as carrying identical risk. A $20,000 kitchen made up of $14,000 of fixed-price cabinetry already on order and $6,000 of demolition into an unknown wall gets the same $3,000 buffer at 15% as one that is speculative end to end. Where the risk sits in a single part of the scope, size a buffer against that part and add it to the rest rather than smearing one rate across the total.
- Nothing in the arithmetic is a fixed amount: the buffer is purely proportional, so it shrinks with the budget while many of the surprises it is meant to absorb do not. A failed inspection, half a day of extra excavation or an emergency call-out costs roughly the same on a $3,000 job as on a $300,000 one, yet 15% sets aside $450 on the first and $45,000 on the second. Small jobs are the ones a percentage rule quietly under-buffers.
- Whatever is missing from the base figure stays missing from the answer. The base budget is read as a single opaque number, so if permits, disposal, delivery charges or temporary accommodation were never counted in it, a 15% buffer on that total does not fund them — it scales an incomplete estimate rather than completing it.
- The output is a lump sum with no timing in it. No term asks when the money is drawn or how long ago the base was priced, so a buffer taken on a year-old estimate is a percentage of a stale number. Re-running the figure part-way through a job would need the remaining scope and the buffer already consumed, and neither is tracked here.
- The percent field accepts whole numbers from 5 to 50 and the base accepts $100 to $2,000,000; those are input bounds, not guidance about where your job belongs. The commonly cited 10-20% range is a general renovation figure, and nothing in the calculation weighs building age, how much structural work is involved, or how firm your quotes are to place you within it.
The two loans fail in different places
This is the part of the comparison that no monthly payment expresses, and it is the reason the secured rate is lower. A second charge is secured on the house. If the payments stop, the lender's remedy runs to the property, and while MCOB 13 requires a UK firm to deal fairly with a customer in payment difficulty and treat repossession as a last resort, last resort is a description of the order of events rather than an exemption from them. An unsecured loan that goes wrong damages a credit file: default, potentially a county court judgment, and a materially worse set of options at the next remortgage — which is a real cost, sometimes a large one, and it is not the house. That difference is the entire product, and it should be weighed deliberately rather than banked as a saving on the rate.
Two secondary asymmetries are worth naming because they surface later. A second charge sits behind the first and has to be redeemed or consented to when the first charge is refinanced, so a fifteen-year second charge quietly complicates every remortgage for fifteen years. And a second charge is a mortgage for the purposes of the affordability assessment on the next one, which means today's cheaper monthly payment reduces tomorrow's borrowing capacity in exactly the way any other committed expenditure does.
There is one tax point that runs the other way, and only in the United States. IRS Publication 936 sets out that interest on home equity borrowing is deductible only where the proceeds are used to buy, build or substantially improve the home that secures the loan, within the overall limits on home acquisition debt and only for a taxpayer who itemises. A renovation financed by a loan secured on the house being renovated is the case the rule was drafted around; the same equity drawn to clear a car loan is not, even though the loan document is identical. Unsecured borrowing does not qualify at all. There is no equivalent relief on a main residence in the United Kingdom, and anyone weighing this in the US should be reading Publication 936 for the year in question rather than a summary of it, this one included.
Do not let the loan outlive the work it paid for
A fifteen-year loan against a kitchen is a bet that the kitchen lasts fifteen years, and it is worth checking rather than assuming. BS 7543, Guide to durability of buildings and building elements, products and components, is the standard that frames design life; the BCIS Life Expectancy of Building Components and the HAPM Component Life Manual are the published sources trades actually use for component-by-component figures, and either is a better authority on how long a carcass, a worktop or a set of hinges lasts than the showroom that sold them. Run the exercise honestly and the composition of the job matters more than its total: a structural opening, a rewire and wall insulation are fabric, still doing their work decades out, while doors, worktops and appliances are the parts that wear. A long term against the fabric is defensible. A long term against the finishes means paying for the second kitchen while still paying for the first.
The resale argument deserves less weight than it usually gets in this conversation. Cost-recouped surveys are national averages, drawn from a different housing stock in a different year, and the recouped share of a kitchen in one market says very little about a specific street. If resale genuinely is the reason for the spend, the useful input is a local agent's view of what your house is capped at with and without the work, not a percentage from a table. If it is not the reason — if the point is that the ground floor is unusable and the family lives there now — then say so, and let the funding decision be about the term and the risk rather than about a return nobody is going to collect.
The order to settle it in
Nothing above requires a decision between secured and unsecured in the abstract. It requires four numbers — what the equity releases, what the income services, what each product costs in total over a term you will genuinely hold to, and what happens if the ground floor produces a surprise — and the decision falls out of them. Get them in that order, because each one narrows the next and doing them out of sequence is how a household ends up with a fifteen-year charge on the house to pay for cabinet doors.
One point of sequence on the builder's side, since the money and the contract meet at the deposit. Put the work under a written contract — the JCT Building Contract for a Homeowner/Occupier and the RIBA Domestic Building Contract both exist for exactly this size of job — so that variations are priced in writing against the contingency rather than settled by conversation. And note that where a contract is signed in your home rather than at the builder's premises, the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 give a fourteen-day cancellation right, which is a period the drawdown of borrowed money can usefully sit behind rather than in front of.
- Fix the sum first: the quoted total, plus a contingency sized by what is unknown behind the wall, less whatever cash goes in without touching the emergency reserve.
- Work out what the equity releases at a combined cap, on a valuation six per cent below your own estimate, and treat that as the ceiling rather than the plan.
- Price the same sum on every route you can actually access — further advance, second charge, unsecured term loan — over the same number of years, and compare the total interest rather than the monthly payment.
- Re-price the best two over the shortest term you can service, then check whether the longer-term product can be overpaid to that same figure without a charge. That combination usually beats both.
- Confirm the early repayment or settlement position, the consent requirements of the first-charge lender, and any fee added to the loan rather than paid on the day.
- Check the term against the working life of what is being bought, splitting fabric from finishes, and shorten it where the loan would outlast the work.
- Draw the money on a schedule that matches the builder's stage payments rather than in one lump at the start, so interest does not run on cash sitting in a current account waiting for a plasterer.
Six numbers before the deposit leaves the account
The workspace opens on the improvement loan payment with a five-year term already in the field, and the equity and contingency calculators stacked beneath it. The sums, the rates and the valuation are yours to type over it — every figure in the article is one illustration on one house.
- The sum to apply for, not the sum on the quote — Quoted total plus a contingency sized by the unknowns behind the wall, less the cash you can commit without spending the emergency reserve. Applying for the quote alone is how a second application gets made in week four at a worse rate.
- What the equity releases at a combined cap, on a cautious valuation — Total equity is not a lending limit. Run the combined loan-to-value cap on a valuation six per cent below your own estimate, because the lender instructs the valuer and the figure lands after you have committed to a start date.
- Total interest on every route, over the same number of years — Further advance, second charge and unsecured loan priced on one sheet with the term held constant. Comparing monthly payments across different terms reverses the ranking, which is precisely why advertisements quote them.
- The shortest term the household can genuinely service — Then check whether a longer, cheaper-rate product can be overpaid down to that same monthly figure without a charge. On the worked example that route beat every fixed-term option on the page.
- The early repayment charge or settlement figure, in writing — A percentage by year on a second charge under MCOB 12, or a quoted settlement figure on an unsecured agreement, which the Consumer Credit (Early Settlement) Regulations 2004 allow to exceed the outstanding balance.
- The working life of what the money buys, split into fabric and finishes — A structural opening, a rewire or wall insulation will outlast a fifteen-year term; worktops, appliances and doors will not. Consult BS 7543 or the BCIS life expectancy data rather than the showroom.
Opens the calculators above on one screen with the dimensions from this article already filled in. Quantities only — this site publishes no price list, because local prices vary too much to publish honestly.