save for extension or overpay then reborrow?

worto03

Hia,

We've just started saving for an extension, it's going to take 3-4 years to get the 20k together if all goes to budget but I'm concerned I may be taking the wrong route.

I'm planning to save the 20k (using mine & my GF's ISA's) get the extension built before my 5 year fixed runs out in 5 years time then get my house re-evaluated as the extension will change my house value and hence my LTV hopefully getting me a decent deal next time round.

Am I better off overpaying the mortgage every month then in 3-4 years when I think I've overpaid it enough ask the bank to borrow 20k against the house or remortgage for an additional 20k to build the extension?

I always (these days at least) save to buy things like cars ect. instead of borrowing the money but I'm not sure if this is the best way to do it this time?

thanks for any advice,
worto.

unite79

Subject to the Rate you are paying being better than that you get on savings, then yes it would be better, However - A word of warning, some lenders have amended the borrow back option during the mortgage contract, and make the borrow back subject to current criteria.

Barneysmom

I'd overpay.
For a couple of reasons.

Firstly you might change your mind about the extension and may like the idea of moving house better?

You might chop and change the layout in your mind of how you'd like it to be, give yourself a good length of time to decide exactly what you want where? I'm not xplaining this one very well am I?

But if you do decide to overpay, you've got to be strict with yourself, and make sure you do it?

worto03

Hi,

Thanks for the replies.

some lenders have amended the borrow back option during the mortgage contract, and make the borrow back subject to current criteria

sorry to appear dim but I'm not sure what that means really or what implications it has?

I'd overpay.
For a couple of reasons.

Firstly you might change your mind about the extension and may like the idea of moving house better?

You might chop and change the layout in your mind of how you'd like it to be, give yourself a good length of time to decide exactly what you want where? I'm not xplaining this one very well am I?

But if you do decide to overpay, you've got to be strict with yourself, and make sure you do it?

As for these we might well change our mind - it's kind of an ongoing debate at the mo as you can imagine but my plan was that once we have 20k if we do move instead we'll have a nice lump sum to put down towards a new house to add to the equity in our current house. (if there's any euity in it by then!)

As for chopping and changing I'm sure we will and already have done but we have 3-4 years while we are saving to redraw the plans 30 times!

One thing I'm worried about is that if the house prices continue to fall even if I overpay the bank might not want to lend me the money to extend but if I've got the cash it's mine and up to me what I do with it so I could extend without worrying too much what the bank thinks about it. I'm not sure if thats a valid concern or not but it's playing on my mind.

unite79

As an example, Northern Rock, offered a flexible mortgage, ie you could overpay what you wanted, adn then re-draw the money - Due to the impact of the credit crunch etc, they now assess each case on its own merits, so if you had overpaid by for example £20,000 expecting to get it back, they can turn round and refuse you - and indeed are doing in a lot of cases!

worto03

ah thanks - thats one of the things I'm worried about - if I overpay I have no guarentee they'll lend it back to me again.

unite79

I know, I sound bitter, cause the exact smae thing has happened, overpaid by almost 100k, but can I get a bean back......

gizmo111

unite79 wrote: »

I know, I sound bitter, cause the exact smae thing has happened, overpaid by almost 100k, but can I get a bean back......

Surely they cannot change the T&C.......... if the terms were you could get back overpayments tehn on wht basis are they changing them?

unite79

The T=c have small print, that it is based on current criteria - My income has fallen over the last few months!

opinions4u

worto03 wrote: »

We've just started saving for an extension, it's going to take 3-4 years to get the 20k together if all goes to budget but I'm concerned I may be taking the wrong route.

While I wouldn't normally suggest people getting in to debt, if you can afford to save that sort of sum in a relatively short period, why not borrow for the extension now (further advance or personal loan), while building costs are cheaper than they were a year or so ago?

- Why do you want an extension?
- What's the current value of your house?
- how much do you owe on the mortgage?
- how much do you both earn?
- what other credit/loans do you have?

I'm planning to save the 20k (using mine & my GF's ISA's) get the extension built before my 5 year fixed runs out in 5 years time then get my house re-evaluated as the extension will change my house value and hence my LTV hopefully getting me a decent deal next time round.

It's a plan, but if the housing market continues its downwards trend it may not work. The mortgage market may look very different anyway in 4 or 5 years. If you spend £20k on an extension it will probably add between £10k and £15k to the value of your property. You might lose the same amount in value over the next 12 months.

Am I better off overpaying the mortgage every month then in 3-4 years when I think I've overpaid it enough ask the bank to borrow 20k against the house or remortgage for an additional 20k to build the extension?

Is there a guarantee that they'll lend it to you then, more than now? Do you have a flexible mortgage that allows you to reborrow previous overpayments? If not, there is an element of risk to the plan. Especially if house prices don't recover.

One question - if you can save the £20k and build the extension, why would you choose to reborrow it? Why not keep your debts lower?

I always (these days at least) save to buy things like cars ect. instead of borrowing the money but I'm not sure if this is the best way to do it this time?

I too prefer to have the funds saved for big purchases. It's a logical approach to finances that also means you earn interest rather than pay interest.

BUT: £20k over 5 years will probably cost you between £400 and £450 a month in repayments on a personal loan, less if you can attach it to your mortgage. If you can get the loan, it sounds like you can afford the payments.

Depending on your need for the extension, borrowing now over a term shorter than the mortgage may actually be a better personal choice.

worto03

wow - thanks for the post, some good questions there! Let me try to answer them.

While I wouldn't normally suggest people getting in to debt, if you can afford to save that sort of sum in a relatively short period, why not borrow for the extension now (further advance or personal loan), while building costs are cheaper than they were a year or so ago?

Most of that sum will be coming from sharesave schemes at work, I have one finishing every Oct and the minimum payout I'm guarenteed from each one is 4k so thats the 12k (maybe more) the other 8k I'm saving myself at the same time.

- Why do you want an extension?
because we love our house and where it is but the kitchen and bathroom are too small especially now that we have had a little one (shes 2 now) and the bathroom is downstairs so we'd like to add an extra bathroom upstairs at the same time.
- What's the current value of your house?
around £105,000
- how much do you owe on the mortgage?
£92,000
- how much do you both earn?
around £45,000 between us - my GF only works 2 days a week since the baby was born, I have no idea how this is going to change so tend to plan everything just based on my earnings which is around £34,000
- what other credit/loans do you have?
none - finally - took us a few years to do it with some very shoddy holidays but we got there! - I do have plenty of outgoings though
pension (£100)
child care vouchers(£240)
3x sharesave schemes(£250)
petrol (£250)
Thats all the biggies apart from the normal bills

It's a plan, but if the housing market continues its downwards trend it may not work. The mortgage market may look very different anyway in 4 or 5 years. If you spend £20k on an extension it will probably add between £10k and £15k to the value of your property. You might lose the same amount in value over the next 12 months.

We want to build the extension so we can stay here so adding value to the house is only a bonus really that may or may not as you say get me a better deal on the mortgage.

Is there a guarantee that they'll lend it to you then, more than now? Do you have a flexible mortgage that allows you to reborrow previous overpayments? If not, there is an element of risk to the plan. Especially if house prices don't recover.
One question - if you can save the £20k and build the extension, why would you choose to reborrow it? Why not keep your debts lower?

I don't think I'd have a chance in hell of adding 20k to the mortgage now, my LTV is already around 88% I could probably get a loan for that ammount quite easily but I wound't be able to pay the £500 a month repayments as above I have some spare money each month which I save but most of it is going into sharesave schemes.

Depending on your need for the extension, borrowing now over a term shorter than the mortgage may actually be a better personal choice.

From answering your questions I don't think borrowing the money now is an option without taking out some sort of flexible loan that would let me pay around £100-£200 a month then once a year a lump sum which I assume I'd pay quite a primium for.

I'm edging towards just saving the money now then getting it done. The fact that 50 people havvn't replied saying - WHAT ARE YOU NUTS!?! shows there isn't much in it either way I guess...

Cheers,
worto.