Funding an Extension - Mind Blowing

mike83_2

Hi stooges…….really need some help......PLEASE
I have reviewed a number of threads already, hence my options below.

I need to fund an extension in the cheapest way.

Scenario:

House Value Now : £145,000
Remaining Mortgage £132,000
Equity : £13,000
Mortgage : Standard Variable Rate HSBC 4% ish from memory
LTV : 91%

Extension Cost : £30,000
House Value After Extension £175,000
LTV After Extension circa 75%

Disposable Income VERY GOOD, no issues
Deposit : Not worth considering
Debts : Few

Options (where I need your help)
Objective : Lowest cost possible – Lowest monthly payments – Take advantage of future LTV ratio.

1 – Bank loan @7% for 25k, 5k from cash/savings only making 3% interest. Then re-mortgage the house at better LTV after the extension (LTV would be circa 75%, so could get a rate in the 3.x%?
2 – Release equity in property (£13,000) and loan the rest @ 5% intetest, but this might tie me in to a mortgage on an even worse deal, and stuck on it once the work gets done and the LTV improves?
3 – Pay for it on credit cards, transfer the 30k to 0% for 18months @ 3% charge (£900). Get the work done, remortgage the house at 75% LTV and get a great deal 3.x% (Lowering monthly payments by around £150), perhaps add some cash into the re-mortgage to pay off some of the credit cards? Try and pay off as much as I can (realistically 7k) in 18 months, and move the remainder to another 0% card, probably with another balance transfer charge of £500, and keep paying off. I think the credit card transfer fees are still less than the upfront 7% interest on a bank loan (where the 7% gets applied upfront – so paying off quicker saves you nothing). PROBLEM : How the heck do I pay builder on Credit card?
4 – Don’t get an extension (there’s always a smart ar5e

I’d like to think I am reasonably intelligent, however it would take me an age to work this out, and am hoping some of you have been in a similar position and know the best solotion?

I’m also open to the mathematicians among you trying to explain the best option with numbers, if you’re bored on Saturday night J

Very grateful moneygrabbers, I mean moneysavers

Mike :T

Annisele

I can't help on all of it, but I'm afraid I can knock out option 2 - it isn't actually an option. In order to release your £13k equity, you'd need a 100% LTV mortgage - and they no longer exist.

1 and 3 both have risks. Will you actually be able to borrow enough against your home to pay off the loan/credit cards? By the time you come to paying them off, the purpose of your remortgage would be debt consolidation rather than home improvements. Lenders get nervous about debt consolidation.

dotdash79

Also taking out loans will affect your affordability for when you come to do a remortgage.

If you can leave it 12 - 18 months and save some more cash you would be in a stronger position.

dimbo61

Maths not your strong point ?
You owe £132K and want to borrow another £30K to build extension which Might add value ( You hope )
Property now worth £145K
Property after extension £175K but You would owe £162K so 93% LTV
In the current mortgage market the only way you will get your extension is to save up the money to pay for the build in stages either by paying a builder or doing it yourself

mike83_2

Annisele wrote: »

I can't help on all of it, but I'm afraid I can knock out option 2 - it isn't actually an option. In order to release your £13k equity, you'd need a 100% LTV mortgage - and they no longer exist.

1 and 3 both have risks. Will you actually be able to borrow enough against your home to pay off the loan/credit cards? By the time you come to paying them off, the purpose of your remortgage would be debt consolidation rather than home improvements. Lenders get nervous about debt consolidation.

Thanks, valid point about 100% - you just saved me a 45 min call with HSBC. Also, I have a goodincome, so paying loans/cards would not be an issue, it deposit where I struggle. I'm merely trying to figure out the cheapest way to finance this work (as opposed to debt consolidation). Thanks

mike83_2

dimbo61 wrote: »

Maths not your strong point ?
You owe £132K and want to borrow another £30K to build extension which Might add value ( You hope )
Property now worth £145K
Property after extension £175K but You would owe £162K so 93% LTV
In the current mortgage market the only way you will get your extension is to save up the money to pay for the build in stages either by paying a builder or doing it yourself

Hi, I'm not looking to borrow the money via mortgage, thus not affecting LTV. Sounds like a loan (non mortgage) or credit cards might be the best option, thus preserving LTV on current value, and improving on future.

mike83_2

dotdash79 wrote: »

Also taking out loans will affect your affordability for when you come to do a remortgage.

If you can leave it 12 - 18 months and save some more cash you would be in a stronger position.

Thanks for the reply, if it were that simple

Annisele

mike83 wrote: »

Hi, I'm not looking to borrow the money via mortgage, thus not affecting LTV. Sounds like a loan (non mortgage) or credit cards might be the best option, thus preserving LTV on current value, and improving on future.

Ah, I'd misunderstood. Your options 1 and 3 both involved remortgaging once the extension was built, and I'd assumed you wanted to move the loan/credit card debt to the mortgage.

If you'd be keeping the loan/credit card debt, then you're right that your LTV would improve - but as others have said, the loan/credit card debt might really hammer your affordability.

I know you say affordability isn't a problem, but it's unlikely lenders would be reassured by £25k of unsecured debt plus the "few" you currently have.

Thrugelmir

mike83 wrote: »

Hi, I'm not looking to borrow the money via mortgage, thus not affecting LTV. Sounds like a loan (non mortgage) or credit cards might be the best option, thus preserving LTV on current value, and improving on future.

Credit card or other unsecured debt would impact your ability to remortgage. There's no escaping debt.

mike83_2

Thrugelmir wrote: »

Credit card or other unsecured debt would impact your ability to remortgage. There's no escaping debt.

That's really helpful, thanks.

mike83_2

Thanks for the replies, still not got the answers I was after, lots of comments, not many constructive. Let's set a few facts straight.....I will be getting an extension, so want to know the cheapest way. I have agreed a mortgage in principle (not that I need it) on a new property of 250k, and my income is good, and I have a large disposable monthly income (1k+ after all bills etc), so I don't have any repayment concerns, I simply want the best deal due to me having no deposit (I'm not touching my savings, and I do understand the whole savings rate vs. debt rates etc, but need my safety net). An unexpected family addition around the corner means our semi simply wont suffice, and we don't want to move. Thanks.

I guess what I'm asking now is "should I just loan the money and have an instant interest charge of 3-5k added, and pay it off over time- or, whack it on credit cards, move to 0% for 18months and pay off over time & move to 0% again if not paid off.....this will be a 3%charge each move, but I reckon I can pay off in 2 x 18 month moves (prob £1500 in charges)..........I think I may have answered my own question? if credit card is a good idea, how can I pay builders if they dont take cards? [does this KO my plan?] thanks.