Is a personal loan the best way to fund home improvements?

It comes after the banks reported a doubling in the value of “green” personal loans being taken out by consumers to give them a more energy-efficient home.

But leading broker Martina Hennessy, of Doddl.ie, said in many cases it would work out cheaper for households to top up their existing mortgage and opt for a green mortgage.

Green mortgage rates are up to 1.35 percentage points lower than standard fixed rates. They are available from the main banks if the works result in a Building Energy Rating (BER) of B3 or above.

Green mortgage rates at AIB, Bank of Ireland and Permanent TSB, EBS and Haven are the only that have not been increased lately, and are lower than other home-loan rates.

Figures from Banking & Payments Federation Ireland (BPFI) this week show that there has been a surge in ­people taking out personal loans to carry out works to reduce their energy use.

This includes putting in more insulation, new windows, solar panels or heat pumps.

The banks said the value of green personal loans almost doubled, to close to €20m, in the first three months of the year.

The number of green loans jumped by 82pc over the same period to 874.

The average green loan is relatively high at €22,486, compared with the average for all loans at €9,763.

Green loans are generally available at terms of up to 10 years.

Ms Hennessy said that with the average green loan at €22,486, over a 10-year term, the repayments would be €237 a month.

This assumes a rate of 4.9pc, which is available from An Post.

She said: “For many households experiencing an increase in mortgage repayments due to interest rate increases having an additional green personal loan to also service is not affordable.

“The solution could be taking a top- up to your existing mortgage and availing of a lower rate if the works result in a BER of B3 or above,” she said.

This option involves homeowners taking a mortgage top-up in combination with opting for their lender’s green mortgage rate.

This is likely to work out far cheaper than taking out a personal loan and staying on the same mortgage rate.

In many cases homeowners who opt for the top-up and green mortgage rate could end up paying less overall on the top-up and the existing mortgage balance than they were originally paying on their standard mortgage rate.

She gave an example of a family that owes €250,000 on its mortgage. The family is paying a mortgage rate of 4.8pc.

If the family takes out a €22,500 personal loan, at a rate of 4.9pc over 10 years, the monthly repayments on the personal loan and the mortgage will be €1,669.

However, if this family opts for a green mortgage and tops it up by €22,500, it could get a mortgage rate of 3.75pc.

This would mean monthly repayments would fall to €1,400.

Ms Hennessy said: “By taking an equity release for works and availing of ‘green’ rates, based on current rates, mortgage holders can be cashflow positive on a monthly basis and have a lower overall cost of credit for financing the works.”

Separate BPFI figures show there has been a 38pc rise in the value of top-ups mortgages in the last year.

Most green mortgages are available to first-time buyers, movers, and switchers alike, as well as those building their own homes.

In most cases, if you make energy efficiency improvements to your home which upgrade it to a BER of B3 or higher, you can also avail of a green rate from your existing lender.