Overpay my mortgage or do up my house?

petetidball

We're looking at taking out a £10,000 loan to do up our house. This will cover a new bathroom (suite, shower, and tiling etc), a new kitchen (all units, new cooker, some building work, decorationg, levelling floors and re-laying floor), carpets for the stairs/hallway, decorating daughters room and our room, sanding and varnishing wooden floors, and a new back door and kitchen window. It will also leave some cash for a car if I've done my sums right!

The issue is that due to my less than exemplary credit rating, our best loan rate is 12.9% so repayments are £230ish a month over 5 years. My father in law could apply and as he has better credit, get a lower rate (probably 5.9%), which would mean payments of around £195 a month.

My dilemma is that if we put this money on overpayments, we could pay off our mortgage a lot quicker and have more money available when we sell the house. But if we get the loan and do the improvements, we should increase the value of the house and have more money available when we sell. So what should we do?

And if we take out the loan will the extra cost justify improving our credit score?

Sorry the post's so long, I'm not very good at keeping things brief!!

roswell

what you should ask yourself is amount of payments * term = cost.

you will find you are probably better off either way overpaying morgage or saving to make the improvements, even if you start by doing the most neccisary improvement first then doing each on after that you will be better off financialy than getting the loan, getting the loan to overpay the morgage would be silly because it will cost more to repay the loan then the 10 k on the morgage.

A_Nice_Englishman

I agree with roswell. The best thing to do would be to pay for the improvements as you can afford them.

If you're thinking of selling the house within the near future, consider whether the cost of the improvements will be fully reflected in the amount you can sell it for.

save-a-lot

Agree agree with the last 2 posts... getting a loan would definately not be a wise move as the mortgage rate is less than the loan rate. Fund improvements by saving up and tackling them maybe one major job a year, that is what I have done. Over the last three years we have concentrated on the outside and done a major job/year. This way we have not been stretched at all and we feel and see the benefit

danand725

I've just got my head around a similar situation. I too was looking to change the bathroom and kitchen, and use money for the next car - perhaps with a £10,000 draw down on the mortgage.

Just this month I've managed to clear my credit card and am now debt free (apart from the mortgage). I had a builder round who said if I was going to sell, he would recommend doing the minimum to get the place looking good for a buyer - after all, you're not planning to live in it - and they're likely to rip it out anyway!

To cut to the chase, rather than taking on any more debt, I'm going to pay cash getting bits done as I can. Just enough to modernise the important aspects. That way, when I move, I can spend time doing what I want to my next house.

Hope that gives you some food for thought.

Daniel