Question about borrowing money on the mortgage

snowmaker

Hi,

I need to get hold of £10,000 for some home improvements & to pay off some other small debts, I quite like the idea of adding it to my mortgage and have been told by a colleague that adding about £10,000 would be about £20 a month on top of my existing payment...which I can easily budget for.

I have 19 years left of my repayment mortgage so is this a good way of borrowing some money to be paid back over a long time, also would the £10,000 be included in my current fixed rate of about 4% or could I get it at the latest lower interest rates?

Any help or advice would be appreciated.
Steve

grogdog

it wouldnt be added to your exisiting deal, and so that when that deal finishes you can move the entire amount you should borrow the extra money on the svr of your lender.

littlened

I'm no expert, but also bare in mind that to borrow £10k on top of your mortgage you need to have sufficient equity in your property. Also be aware that borrowing £10k could essentially mean you're paying back £20k over the remainder of your mortgage, obviously this all depends on how long you have left on your mortgage and what deal you get.

I've a friend who needs 8k to pay something off, and he's going to put it on his mortgage. When I explained that he could be paying almost double back, he almost had a fit. It would 8k wasted, but you wouldn't notice it.

InMyDreams

snowmaker wrote: »

Hi,
and have been told by a colleague that adding about £10,000 would be about £20 a month on top of my existing payment...which I can easily budget for.

Hate to burst your bubble, but I'm not sure where your colleague got his figures from. At £20/month, interest free, it would still take 500months (over 40 years) to pay it back. And that's without any interest at all.

A £10,000 loan would cost you £33 per month in interest alone at 4%. If you were hoping to pay it back too, in the 19 years your mortgage has left to run, you're hypothetically looking at £62 per month. And even that's only if you can borrow it at 4% for the whole 19 years which just isn't going to happen. At 6% the interest alone will be £50/month. And even 6% is historically low. Not sure what the average interest rate would be if you look at the last 19 years.

And if you did take it out as an advance on your mortgage, then you are risking your home on being able to keep up the repayments, whatever the interest rates go to.

This is not to say that you shouldn't do it, or that it's not the best route for you to take, but tread very carefully.

uzubairu

InMyDreams wrote: »

Hate to burst your bubble, but I'm not sure where your colleague got his figures from. At £20/month, interest free, it would still take 500months (over 40 years) to pay it back. And that's without any interest at all.

I thought the numbers didn't add up too.

clairehi

uzubairu wrote: »

I thought the numbers didn't add up too.

just to say you dont have to have the same term (time the loan is repaid over) on a further advance as on your initial mortgage.

eg we borrowed an extra £12k from the building society to fund home improvements to be paid back over 5 years. this substantially reduces the amount of interest we paid whilst still benefiting from a lower interest rate than an unsecured personal loan. funnily enough the banks do not volunteer this information readily!

Personally I would not want to borrow money secured on the house other than to fund home improvements as these would hopefully add something to the value of the house.

CAB advise against borrowing money secured on your home to pay off debts as experience has shown people just run up the debts again if they havent changed their spending habits.

snowmaker

Thanks for the replies, I might have to look at an unsecured loan then - do you think that the lenders will be lowering their svr's in the new year?

Steve

Gorgeous_George

At 4% you would pay £14,292 back over 19 years having borrowed £10K.

It may sound a lot but remember, in the later years the real cost is eroded by the effects of inflation. You would pay £62.69 at 4%.

With all loans, interest rates are the key (assuming no silly set up fees). You will struggle to get a lower rate than your mortgage.

GG