Home improvement - loan or "second mortgage"?

mackem1980

Hello all,

I am in a state of confusion as to the best way to fund an extension to my home. The extension will cost around £10,000.

I need a loan to cover this amount, and am looking to pay it off over a period of 10 years or more. The reason for this long term is that my wife and I are looking to start a family so we need to keep repayments low in order to cope with any fluctuations in our income. We also have an existing credit card debt that is easily manageable and should be paid off within 18 months but nonetheless limits the repayment amount we can afford.

I have shopped around and found loans with rates around the 6% mark that can be paid off over a 10 year term.

Reluctantly, I have also called my mortgage provider to find out whether I can simply add the sum to the amount that we owe and get a cash advance. To my surprise, my mortgage provider said that they cannot do this, but can only create a new "second mortgage" of £10,000 to be paid off over any period we like, provided that it is shorter than the period we have left on our "first mortgage" - 22 years. If it helps, we have £20,000 equity in our property.

I would appreciate any advice on the best way forward. I suspect it is actually the "second mortgage" option, as it gives us the flexibility to pay over a longer term if necessary, and possibly overpay it should we have spare cash. Meanwhile, a loan may work out cheaper overall, but could put stress on our finances at some points.

If the "second mortgage" is the best option, am I free to find a suitable product with any provider I like, or does it need to be provided by our existing mortgage provider?

Any help appreciated.

Thank you.