How can you go about financing an extension?

In what ways can you go about financing an extension?

The most common route is increasing your mortgage. The lender then looks at your income and at the value of the house after the work. Because an extension makes the house larger, that value may be higher. A valuer determines it on the basis of the drawing and the quote.

• Savings: no interest, but a smaller financial buffer
• Increasing your mortgage: often the lowest interest rate
• Construction deposit: money is paid out per phase against invoices
• Personal loan: quick to arrange, but usually a higher rate
• A combination of your own money and an extra mortgage

How does a construction deposit work for an extension?

When a mortgage is increased for building work, the lender often puts the money in a construction deposit (bouwdepot). You pay the contractor's invoices from that deposit, usually per phase of the work. That way the lender knows the money really goes into the house.

A clear quote with a payment schedule per phase fits in well with this. Make sure the term of the deposit matches the planning, including the time needed for the permit and preparation.

Is the interest deductible when you finance an extension?

If the borrowed money goes towards improving your own home, such as an extension, the mortgage interest is generally tax-deductible. Among other things, the loan must be repaid at least on an annuity or linear basis within thirty years. Further conditions apply and rules can change, so have this checked by an adviser or with the Dutch Tax Administration.

There is little to gain on VAT: you pay 21 percent on an extension. If you have the existing house insulated at the same time, and it is older than two years, 9 percent applies to the labour for that. See renovating and VAT. For making a home more sustainable there are sometimes grants or loans, such as those from the Nationaal Warmtefonds. Also take a look at sustainable renovation and insulation.

How do you decide how much to borrow?

Start with a realistic budget. You can find an indication under how much an extension costs, but for financing you need a quote that describes exactly what will be done. Include a contingency of about 10 percent for the unexpected, and do not forget the kitchen, flooring and furnishings if they are not in the quote.

Bouwbedrijf R. Vlieland puts the budget first: in the first conversation we look at what fits within your financial scope. A tailored quote follows that you can use for your adviser and the valuation. If you are comparing several providers, read choosing a contractor and comparing quotes. More about the building itself can be found under extension.

Frequently asked questions