Can I Borrow Extra On My Mortgage For Furniture?

Furnished house
"In need of borrowing extra funds to furnish your home or finance other kind of purchase? Borrowing extra on your mortgage might seem like a solid idea at first, considering there are other options on the market, ultimately, the nature of your purchase will dictate if borrowing extra is a smart choice or not."

Before anything, yes, you can borrow extra on your mortgage to buy furniture or for other purposes if you qualify to do so, but should you?

Borrowing extra on the mortgage is not always a good plan, it’s best suited for people who want to make home improvements or feel the need to spend a considerable amount in order to add value to it.

For non-substantial amounts, there are plenty of better options to consider other than increasing your existing mortgage loan.

How to Qualify for an Extra Borrow?

The best and easiest way is to have good home equity, people who do not qualify for an extra borrow typically fall under one of these circumstances:

Good income but not enough equity

Good equity but not enough income

Neither

Make sure to pay your mortgage on time and that you’re on par with your credit score before asking your lender for an increase.

What is Home Equity?

Equity
Equity

If you’re unfamiliar with the term, home equity is the difference between how much you owe on your mortgage and the current value of the property.

One minus the other determines how much of your home you actually own.

In a clearer example, let’s say you wanted to purchase a house listed on the market at $500.000, applied for a mortgage, got accepted, and wanted to make a down payment of $50.000, your lender would then provide you $450.000 and you would now have $50.000 of equity.

Equity is a powerful asset, it can be used to cash in after you sell your property and pay all related expenses, you can borrow against it through an equity line of credit (HELOC), or use it to make a down payment on your next home purchase.

Equity can be precisely calculated by getting an evaluation done on your property by your lender.

A clean credit record will be your ally throughout the process of qualifying for an extra borrow as well.

How to Build Home Equity?

Building equity is the same as maximizing the distance between your home’s value and the owed mortgage amount.

It First Starts by Picking the Right Location

If you’re lucky enough to strike a deal in an attractive area or an exceptional neighborhood, chances are the value of your home will passively increase over time without any effort from your end.

An increase in value will also take place once you start updating outdated areas such as kitchens, bathrooms, bedrooms and create new areas if needed.

“Word of advice: Ask your neighbors to give you a tour through their home and secretly pay attention to what’s missing in yours.

Investing in energy-efficient solutions and relaxing areas is yet another way to value and futureproof your home, even though these represent short-term expenses, you will be on top of the game when it comes to increasing value.

Ultimately, investing and maintaining your home will leave it better prepared to compete with other options on the market if you ever want to sell it, keeping it up to date is crucial to increase equity.

Making a Down Payment

This is the fastest way to increase equity.

Equity will be directly proportional to your down payment amount, if you put down $20.000, that’s $20.000 of equity to your home.

Paying Off Your Mortgage Faster

The conventional mortgage repaying method consists of monthly payments, 12 payments per year.

Accelerated payments offer you the chance to save thousands of dollars in interest, this method can be put into practice by splitting your monthly payments in half and paying every two weeks instead of every month.

How Does This Help Reduce Interest?

By cutting off some years of your mortgage payments, making bi-weekly payments is equivalent to making 13 payments in a year (365 days / 14 = 26), therefore, you will end up building equity and paying down your mortgage faster.

Have a word with your lender about this to see if there’s any downside to it in your specific case.

Will Furniture Increase My Home Value?

Furniture
Furniture

It depends, when placed in the right spaces (especially bedrooms), fitted furniture will add value to your home, this is because fitted furniture serves the purpose of increasing storage without stealing space from divisions.

When it comes to selling a fully furnished home the situation is different, the buyer will most likely want to keep your furniture in the deal and maybe even offer you an additional value, but in most cases, nothing substantial or near the initial value you paid for it.

This might be different if the home has been professionally staged, often times the “straight off a magazine” look will appeal to the buyer that wants to move in faster or doesn’t have time to decorate the home, but still, it’s a brave move that can either work like a charm or narrow your buyer pool because oftentimes, the decoration is all about the personal touch.

The best way to pull this off is to let the potential buyer know the price of every piece of furniture by categorizing and tagging each one, make a list of every item and make it available to the buyer before receiving an offer.

You don’t need to spend thousands of dollars for this, depending on your home size and your deal-making skills, home staging companies will often happily furnish your home in order to sell decoration items.

It’s a win-win scenario where both you and the company get benefits.

Why Extra Borrowing is Not Always the Best Solution?

There are a few important points to consider when borrowing extra, especially if what you’re borrowing for is not tied to your home.

Let’s say you’re shopping around for a car, increasing your mortgage due to a lower interest rate instead of recurring to an auto or personal loan is a no brainer.

This works on paper, it’s a true fact that mortgage interest is generally lower, the downside is that mortgage payments are spread over much longer periods of time (20 to 30 years).

If you pay the minimum every month, you’ll end up paying more interest in the long run and spreading the cost of a not related acquisition all over your mortgage.

It’s best to make sure that your request for funds will benefit your home by adding value and increase equity.

Unless you have a plan and know precisely what you are doing, it’s not wise to mix different kinds of debt under one monthly payment.

Final Thoughts

If you’re not planning to sell your home anytime soon and need to furnish it, ask your lender to have it evaluated.

Once you’re in the green with equity, give HELOC a try but shop around in the meantime as better deals might come through, financial decisions should never be made based on just one option. 

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