House extension financing

goldmercury

I am getting a house extension. I do not have the money to pay for it up front however I am coming to the end of my 5 year fixed mortgage rate deal.

Currently I pay 6.09% on my mortgage. My work colleague suggested I just extend my mortgage when it came time to renew to pay for the extension.

There are many deals on the market, I have my eye on the santander 2.99% fixed for 5 years.

However I was going to just take out a 36 month loan and pay it back much quicker as opposed to over the remaining term of my mortgage (18 years) His argument was that I could still make overpayments.

Anyone care to lend advice?

opinions4u

Why not reduce the term of the existing mortgage ... Paying the whole lot back over 10 years for example!

goldmercury

would love to but that would cost me an extra £500 for the next 10 years!

opinions4u

goldmercury wrote: »

would love to but that would cost me an extra £500 for the next 10 years!

How much would it save you over the following 8?

pheonixrising21

opinions4u wrote: »

How much would it save you over the following 8?

It would probably save a lot of money. Equally likely is that the house will be repossessed when the OP defaults on payments they can't afford. I took it from the OPs previous post that the extra £500 a month wasn't affordable (apologies if I am wrong), at least not every month for the next 10 years.

Surely taking the mortgage over the longer period and overpaying as and when spare money is available will get the best of both worlds. The required monthly payments would be lower and the overpayments would reduce the term and cut interest charges.

The monthly payments on a loan would probably be high, can you afford them on top of the mortgage?
Basically, you have two choices. A straight re-mortgage plus a 36 month loan or re-mortgage a higher amount. Which is the cheaper option in the long run, taking into account overpayments?

I would get a quote for the loan, find out the monthly payments and then take the extended mortgage, making overpayments so that your monthly mortgage payment is the equivalent of the straight re-mortgage plus the loan. The lower APR on the mortgage will mean that paying off the equivalent of the loan monthly payments will reduce the debt much faster.

Just make sure that the mortgage you get allows enough overpayments to make it effective. Alot of fixed mortgages have limited or no overpayment ability before penalty charges.

chesky

............Basically, you have two choices. A straight re-mortgage plus a 36 month loan or re-mortgage a higher amount. Which is the cheaper option in the long run, taking into account overpayments?

There IS another choice - not to do the work at all, as it sounds as though it will place a huge strain on the OP's resources.

BugsyBrowne

How much is your house extension?
Have you gone down cheaper methods like timber frame kits?

pheonixrising21

chesky wrote: »

............Basically, you have two choices. A straight re-mortgage plus a 36 month loan or re-mortgage a higher amount. Which is the cheaper option in the long run, taking into account overpayments?

There IS another choice - not to do the work at all, as it sounds as though it will place a huge strain on the OP's resources.

Obviously that is an option, but as the OP didn't ask for an opinion as to whether the work should be done or not (just how to finance the work), I didn't give an opinion on that particular option....