Re-mortgage a property to clear off a loan, what are your thoughts?

ideal_knowledge001

Hi Guys,

Needed a bit of advice on my below situation, I have two questions.


Question1
I own a property which I live in, I am planning to carry out works in the house including a loft conversion. For this I needed a loan of £25k which my bank lent to me as a personal loan.

The Loan repayment is £500 per month which is quite a hefty amount for me but I can manage. My friend goes to me why didn't I just re-mortgage and take £25k out of the property, this way the mortgage would have only gone up by £100 or so, meaning I would have a lot more flexibility with my cash. He is right to say that but I am thinking will my lenders give me £25k as a re-mortgage.


My property is worth around £235k with a mortgage of £150k, my current salary is £30k. So I have already taken out a mortgage 5 times my salary £30k x 5 =£150k, so my thoughts are my lender won't let me remortgage and take out 25k (lender is Natwest btw).

In my situation would a lender usually give out a re-mortgage?
Also if they do give me £25k I am guessing my mortgage rate will change as the rate they offered me was because of a 30% down payment. If they give me £25k the down payment would fall in the 25% amount.


Question2

Ok say I cannot get a re-mortgage right now, due to my salary not being enough, then once I have carried out the works in the house say the property value has gone up from £235k to £265k. The current mortgage outstanding is still £150k and my salary is still £30k, would I then be allowed to re-mortgage and take out £25k? This would mean the mortgage I now owe would be £175k but the down payment is still a minimum of 30% because the property value is now £265k.

I can then atleast clear off my loan, meaning I don't have to pay £500 per month towards it and instead the mortgage payment will go up by £100-£150.

I know on the long run I will probably pay more interest but at least this will give me more flexibility every month with my cash.

Any advice from any smarty pants will be highly appreciated :):):)

kingstreet

Your mortgage affordability is maxed out.

Regardless of the loan to value, you are unlikely to be able to borrow more than 5x income.

JimmyTheWig

Have you already taken out the loan?
If so, you may face two additional problems...
1. The mortgage company can't guarantee that you will use the extra money to pay off the loan. So not only would it mean a mortgage of nearly 6x your income it would mean a mortgage of nearly 6x your income in addition to a personal loan of nearly 1x your income.
2. Turning unsecured debt into secured debt (which is what you would be doing) can be seen as mis-selling so the mortgage company may refuse on those grounds.

ACG

Can you not renegotiate the loan? Pay it back over a longer period?

ideal_knowledge001

JimmyTheWig wrote: »

Have you already taken out the loan?

Yes I have already taken out the loan, ahhh I see you're right there is no guarantee that I will pay the loan off even if my lender does give me the £25k.

My sister who lives with me has a part time job and earns 10k annually, is it possible to add her to the mortgage so our total salary would be £40k (£30k+£10k), and then I can re-mortgage and take out £175k? This would then mean I have £25k extra so I can clear off my personal loan. I understand doing this would mean my sister has some power over my property but I am not worried about that.

Thanks

ideal_knowledge001

ACG wrote: »

Can you not renegotiate the loan? Pay it back over a longer period?

I can still pull it off not a problem, but I was just checking the best way I can get flexibility.

The loan itself is 4.9% APR over 5 years, if I did borrow it for any longer the rate goes up to 8% so I didn't want to increase the interest amount on it.

JimmyTheWig

ideal_knowledge001 wrote: »

My sister who lives with me has a part time job and earns 10k annually, is it possible to add her to the mortgage

You can only be on a mortgage if you are on the deeds.
So you would have to pay a solicitor to arrange to transfer the house from your name to joint names.
You would then have to redeem the mortgage (are there early repayment charges applicable at the moment) and take out a mortgage in joint names.

I don't know what this would do in terms of affordability.
But it would certainly be a complicated and expensive process.

marathonic

ideal_knowledge001 wrote: »

I can still pull it off not a problem, but I was just checking the best way I can get flexibility.

The loan itself is 4.9% APR over 5 years, if I did borrow it for any longer the rate goes up to 8% so I didn't want to increase the interest amount on it.

4.9% isn't a bad rate. Also, the £25k work may not necessarily add £30k to the value of your house so you may find that adding £25k to your mortgage removes access to 70% LTV mortgages. Especially considering the addition of the fees associated with the top-up and re-valuation.

I'd just continue to pay off the loan at 4.9% if it's affordable.

ideal_knowledge001

JimmyTheWig wrote: »

You can only be on a mortgage if you are on the deeds.

I see, yes there is an early repayment fee of £5k...looks like the only way to get a loan of £175k is to get a payrise to atl east £35k.

It's fine for now I can afford to pay it and am confident to clear it off before the 60 months term but thought let me see if there is a way out right now, so I could get more flexibility every month.

Looks like adding someone to the mortgage would be expensive so best to leave it as it is.

marathonic

ideal_knowledge001 wrote: »

I see, yes there is an early repayment fee of £5k...looks like the only way to get a loan of £175k is to get a payrise to atl east £35k.

It's fine for now I can afford to pay it and am confident to clear it off before the 60 months term but thought let me see if there is a way out right now, so I could get more flexibility every month.

Looks like adding someone to the mortgage would be expensive so best to leave it as it is.

Another option - pay as much as possible off your loan over the next 2 years. If you manage to pay off half, then apply for another loan of £12,500 over 5 years and use the proceeds to clear the remainder of your current loan.

That'd free up your finance a good bit in 2 years rather than 5.

ideal_knowledge001

marathonic wrote: »

That'd free up your finance a good bit in 2 years rather than 5.

Smart idea, but I am hoping in 2 years to clear it all off anyways
Lucky for me other half will be helping out...but yes if that doesn't work your idea is pretty good.

I just wanted to see if I could clear it off even quicker.